National - Retail - 1/1/2008

Real Estate Investment Research
2008 National Retail Report
RETAIL
To our valued clients:
The outlook for 2008 can be defined as a time of transition for the economy, capital markets and retail real estate.
After several years of exceptional performance, record capital flows and unprecedented liquidity, a focus on fundamen-
tals and value creation will once again drive investment strategies. The economy will face a number of major challenges
in 2008. Even those who share our expectation that the United States will avoid recession agree that growth will be
slower and risk levels elevated.
The significance of the housing market correction and credit tightening, and their impact on retail real estate, should
not be underestimated. It would be unwise, however, to overlook the resilience of the U.S. economy and the positive
forces at work, including rising exports, a healthy corporate sector and job growth, even at more moderate levels. In
addition, central banks are shoring up the global financial system by increasing liquidity and lowering short-term rates.
Retail sales will rise in 2008, albeit at a reduced pace from recent years when disposable incomes were augmented by
record-high home equity withdrawal. The housing market and credit conditions remain the wild cards.
Unlike past cycles, the nation’s retail market is generally balanced, as development has been driven largely by
tenant demand in recent years. Vacancy is forecast to post a modest uptick this year after rising almost one percentage
point in 2007 due to reduced retailer expansion and the impact of slower sales on small operators. The development
pipeline is thinning, and some planned projects are likely to stall this year due to tougher lending standards.
The CMBS market remains constrained, as the backlog in the secondary market has been difficult to price, while
commercial banks and insurance companies have increased origination volumes. Lenders’ re-pricing of risk has resulted
in lower loan-to-value ratios and greater scrutiny of operations and tenant credit quality; however, today’s commercial
real estate financing conditions are best characterized as a return to “normal” when viewed from a historical perspective.
Buyers have become more selective, and a broad cap rate compression cycle is no longer the driver of value. We
anticipate pricing adjustments of varying degrees, with the flight to safety keeping buyer demand highest for top-tier
assets in primary markets. Offshore investors will leverage the weak dollar to increase U.S. retail holdings. Plenty of
capital remains on the sidelines, ready to take advantage of more reasonable pricing once clarity emerges on the
economic front. Buyers hoping for major, systemic price corrections risk missing the market, as retail fundamentals are
still healthy by historical standards.
To assist you in planning a successful retail investment strategy, we are pleased to present our 2008 National Retail
Report. Included in this report is our National Retail Index (NRI), a forward-looking ranking of 43 markets based on
forecast supply and demand conditions. We trust you will find this report helpful in formulating and executing your
investment strategies, and our investment professionals stand ready to assist you in meeting your goals.
Sincerely,
Harvey E. Green Hessam Nadji

President and Managing Director
Chief Executive Officer Research Services
NATIONAL PERSPECTIVE
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
National Retail Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
National Retail Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MARKET OVERVIEWS
Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Austin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Boston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Charlotte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Cincinnati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Cleveland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Columbus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Denver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Detroit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Fort Lauderdale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Indianapolis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Jacksonville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Kansas City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Las Vegas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Los Angeles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Milwaukee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Minneapolis-St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
New Haven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Statistical Summary Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-33
New York City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Northern New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Oakland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Orange County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Orlando . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Portland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Riverside-San Bernardino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Sacramento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Salt Lake City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
San Diego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
San Francisco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
San Jose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Seattle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
St. Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Tampa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Tucson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
West Palm Beach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Single-Tenant Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
CLIENT SERVICES
Contacts, Sources and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Office Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58-59
National Retail Group (NRG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Research Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Marcus & Millichap Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Written by Erica Linn, Senior Analyst, and edited by Hessam Nadji, Managing Director. The Capital Markets section was co-authored by
William E. Hughes, Managing Director, Marcus & Millichap Capital Corporation. Additional contributions were made by Marcus &
Millichap market analysts and investment brokerage professionals nationwide.
2008 Annual Report
Executive Summary
National Retail Index (NRI)
◆ San Francisco climbed seven spots to #1 in the 2008 National Retail Index (NRI), followed by San Diego, which gained
four positions. Last year’s leader, New York City, fell three positions but remained in the top 10.
◆ Markets that experienced some of the strongest housing booms in recent years were hardest hit in the 2008 ranking.
Phoenix (#13) dropped 10 places, while Fort Lauderdale (#11) fell nine spots, and Riverside/San Bernardino (#23) and
Tampa (#30) each slipped seven spots.
◆ It is important to note that since the NRI is a relative index, measuring the forecast level and degree of change for a series
of variables, including vacancy, it is possible for an improving market to remain flat or decline in the index, and vice versa.
National Economy
◆ Total nonfarm employment growth is forecast to slow to 0.9 percent this year, or 1.25 million jobs. Job creation in 2007
reached an estimated 1.2 percent. The educational and health services sector is expected to record the largest gains, while
weakness in the housing market will continue to weigh on financial and construction employment.
◆ U.S. GDP growth is expected to decelerate to 2.1 percent in 2008, following an estimated gain of 2.5 percent in 2007
and 2.9 percent in 2006. Stronger trade and a healthy corporate sector will support expansion. The housing market will
remain a drag, potentially shaving 0.75 percentage points off of overall growth.
◆ The unemployment rate is expected to rise to the low- to mid-5 percent range this year. With more slack in the labor
market, employers will be under less pressure to raise wages. The deceleration in wage growth will hamper consumer
spending, but the alternative of accelerating inflation could restrict the Fed’s ability to stimulate the broader economy.
Retail Market Overview

◆ Developers are responding to more modest retailer demand by reducing deliveries. Completions are forecast at 125 million
square feet this year, down from 145 million square feet in 2007. Builders remain active in the large shopping center arena,
however, where openings will total 10 million square feet in 2008, similar to 2007 but two times the total delivered in 2006.
◆ Overall vacancy is expected to rise 50 basis points in 2008 to 10.2 percent, following a 90 basis point increase last year.
Approximately two-thirds of the space scheduled for completion this year is already pre-leased.
◆ Asking rents are forecast to rise 2.6 percent this year to approximately $20 per square foot. With vacancy pushing
higher, owners are expected to increase concessions in an effort to attract and retain tenants, limiting effective rent
growth to a modest 2 percent.
Capital Markets
◆ Financing spreads increased dramatically in the second half of last year and remain volatile. Cautious lenders will
closely monitor economic and retail market trends, causing spreads to fluctuate.
◆ The 10-year Treasury yield is expected to range from 4 percent and 4.25 percent in 2008, but may rise further if housing
and capital markets improve as expected, shifting capital out of bonds.
◆ The Fed continues to reiterate its intent to act as needed to prevent recession. The fed funds rate ended 2007 at 4.25
percent, down from 5.25 percent prior to the capital markets shock. Additional fed funds and discount rate cuts could
be in store in 2008, assuming the recent unexpected jump in inflation reverses course.
Investment Outlook
◆ After skyrocketing 80 percent, retail property prices are expected to retreat moderately. Correction will be concentrat-
ed in the lower tiers, where cap rates could rise by as much as 100 basis points.
◆ Cap rates for higher-quality assets with strong credit tenants are expected to register only mild increases this year,
ranging from approximately 20 basis points to 40 basis points.
◆ A more than 20 percent decline in the U.S. dollar since 2002 is generating significant foreign demand for U.S. real
estate, a trend that will remain in force this year. Retail properties accounted for more than one-third of major foreign
commercial real estate purchases last year, nearly matching activity in the office sector.
2008 Annual Report page 3

National Retail Index
Markets with the Highest Markets with the Highest
Expected 2008 Employment Growth Expected 2008 Completions
8
Millions of Square Feet

Salt Lake City
Austin 6
Riverside-San Bernardino
San Antonio 4
Jacksonville
Dallas/Fort Worth 2
Seattle
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Nonfarm Employment (Y-O-Y Change)
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2008 National Retail Index
Markets with the Lowest
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Expected 2008 Employment Growth arcus & Millichap is pleased to present the 2008 edition of the
New Haven
National Retail Index (NRI). The NRI is a snapshot analysis that
Minneapolis-St. Paul ranks 43 retail markets based on a series of 12-month forward-
New York City looking supply and demand indicators. Markets are ranked based on
Oakland their cumulative weighted-average scores for various indicators,
Cincinnati including forecast employment growth, vacancy, construction,
Columbus household formation, retail sales, rent growth and an additional
Northern New Jersey analysis of local housing market conditions. Taking into account both
Cleveland the forecast level and degree of change over the next year, the index is
Detroit designed to indicate relative supply and demand conditions at the
Milwaukee market level.
United States
-0.5% 0.0% 0.5% 1.0% 1.5% Users of the index are cautioned to keep several important points
Nonfarm Employment (Y-O-Y Change) in mind. First, the NRI is not designed to predict the performance of
individual investments. A carefully chosen investment in the bottom-
ranked market could easily outperform a poor choice in the top-ranked
Markets with the Lowest
8% Expected 2008 Vacancy Rates market. Second, the index is geared toward a short-term time horizon.
A market facing difficulties in the near term may provide excellent long-
Vacancy Rate
6% term prospects, and vice versa. Third, a market’s ranking may change
from one year to the next even if its fundamentals remain unchanged.
4%
This can happen when conditions are stable in one market while
2% shifting in the market’s peers. Finally, because the NRI is an ordinal
index, differences in specific rankings should not be misinterpreted. For
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example, the top-ranked retail market is not necessarily twice as good
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Slowing Economy a Headwind for Retailers

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Cooling economic growth and the housing downturn are weighing

Markets with the Highest heavily on retailers throughout the country. Declines in consumer
20% Expected 2008 Vacancy Rates confidence and retail sales growth are expected to result in store closures
among smaller merchants and slower expansion plans for larger chains.
Vacancy Rate
15%
These trends, following several years of elevated construction, are taking
10% their toll on retail markets, particularly those that benefited the most
from the housing boom. Several Florida markets, as well as markets
5%
including Phoenix and the Inland Empire, which were near the top of the
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page 4 2008 Annual Report

National Retail Index
Markets with the Highest
Expected 2008 Household Growth Rank Rank 07-08
4%
Annual Household Growth
MSA 2008 2007 Change

3% San Francisco 1 8 ▲ 7
San Diego 2 6 ▲ 4
2%
Seattle 3 5 ▲ 2
1% New York City 4 1 ▼ 3
0% San Jose 5 10 ▲ 5
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Los Angeles 9 12 ▲ 3
Portland 10 17 ▲ 7
High-Tech and Land-Constrained Markets Dominate Top 10 Fort Lauderdale 11 2 ▼ 9

Washington, D.C. 12 9 ▼ 3
In the 2008 NRI, San Francisco moved up seven places to take over the
#1 position. San Francisco, already one of the tightest markets nationwide, Phoenix 13 3 ▼ 10
is forecast to post above-average effective rent growth and will also register Austin 14 15 ▲ 1
the strongest vacancy improvement. San Diego moved up four places to Atlanta 15 14 ▼ 1
the #2 spot, fueled by modest completions and the highest rent growth
forecast in the country. Seattle inched up two places to #3, as strong Miami 16 20 ▲ 4
technology hiring and above-average retail sales per capita will continue to Boston 17 18 ▲ 1
drive demand for retail space. Last year’s leader, New York City, slipped West Palm Beach 18 11 ▼ 7
to #4 despite forecasts for high effective rent growth and better-than-
average overall vacancy. Slowing employment growth and a mild uptick Denver 19 25 ▲ 6
in vacancy caused the decline. Active hiring by technology companies is Orlando 20 27 ▲ 7
also supporting retail in Silicon Valley. Expectations for above-average Tucson 21 21 ■ 0
effective rent growth and tightening vacancy moved San Jose up five
places in the index to #5. Northern New Jersey 22 19 ▼ 3
Riverside-San Bernardino 23 16 ▼ 7
Oakland holds the #6 position in the 2008 NRI, down two places from
Houston 24 26 ▲ 2
last year. Oakland posts the lowest vacancy rate in the nation, but forecasts
for a slight increase in vacancy and slowing rent growth led to its drop. Chicago 25 22 ▼ 3
Strong economic conditions relative to the U.S. and healthy retail sales per Salt Lake City 26 34 ▲ 8
capita, due in part to its tourism-based economy, placed Las Vegas in the
Dallas/Fort Worth 27 24 ▼ 3
#7 spot, a six-position rise from last year. Orange County fell one spot in
this year’s ranking to #8 due to minimal job growth. Orange County still Minneapolis-St. Paul 28 30 ▲ 2
remains one of the tightest retail markets in the country. Los Angeles Philadelphia 29 31 ▲ 2
moved up three positions to #9. Despite housing-related layoffs, Los
Tampa 30 23 ▼ 7
Angeles is expected to register modest job growth in 2008, and the vacancy
rate will remain one of the lowest in the country. Portland jumped seven Sacramento 31 28 ▼ 3
places in the index to round out the top 10, as above-average household San Antonio 32 29 ▼ 3
growth and job creation will fuel retailer demand in 2008.
Charlotte 33 32 ▼ 1
The most significant downward movers are markets with high Jacksonville 34 33 ▼ 1
exposure to housing, which has caused weakness in retailer demand. Fort Indianapolis 35 36 ▲ 1
Lauderdale (#11) slipped nine places, while West Palm Beach (#18) and
Tampa (#30) each slipped seven spots. Phoenix (#13) and Riverside-San St. Louis 36 New ■ NA
Bernardino (#23), which are faced with weak housing markets and Columbus 37 38 ▲ 1
significant new retail construction, fell 10 and seven places, respectively. Kansas City 38 37 ▼ 1
The lower tier of the index includes primarily Midwestern markets New Haven 39 35 ▼ 4
that tend to register slower economic growth. Minimal household and Cincinnati 40 42 ▲ 2
retail sales expansion caused many of these markets to drop in the index
Detroit 41 40 ▼ 1
this year. There is upward momentum among some Midwest markets,
however, with Indianapolis (#35) and Columbus (#37) each moving up one Milwaukee 42 39 ▼ 3
position, and Cincinnati (#40) advancing two places. Cleveland 43 41 ▼ 2

National Economy
Indicators Suggest Slower Growth, Not

Recession, Risk Levels Elevated
U.S. Gross Domestic Product
T
he economic tug of war will continue in 2008 as the drag from housing
9%
and credit markets is offset by rising exports and healthy corporate
U.S. GDP (Annualized Quarterly Chg)
balance sheets. Current employment indicators are generally positive, but

are also subject to revisions that could paint a far less favorable picture. It is
6%
estimated that 500,000 housing-related jobs have been lost since the housing
downturn commenced. Growth in services sectors has been strong enough to
3%
offset housing-related losses so far; however, if business confidence were to
deteriorate significantly, layoffs likely would spread to other sectors. Forecasts
0% of subprime mortgage losses range from around $225 billion to $300 billion, of
which approximately $80 billion has been realized to date. The sheer volume of
-3% potential foreclosures due to ARM resets has commanded the attention of
90 92 94 96 98 00 02 04 06 08** government officials. The initial relief plan involves freezing rates on ARMs if
homeowners meet certain criteria, including being current on monthly
Employment Growth Slowing payments. Additional measures are anticipated, as the initial plan does not
offer assistance to borrowers who have already defaulted on loans.
Nonfarm Jobs (millions, Y-O-Y Abs. Chg.)
Jobs
Nonfarm Employment (Y-O-Y % Chg.)
6% Change in Nonfarm Employment 6

Many Americans have been spending more than they earn for the past few
4% 4
years, particularly those who tapped into their home equity. Fortunately, it is
estimated that homeowners who have not extracted equity account for approx-
2% 2
imately 60 percent of all consumer spending. Overall retail sales will continue
to rise in 2008, though at a much slower rate than in recent years. Higher gas
prices and reduced home equity withdrawal aside, general uncertainty and
0% 0
declining home prices will impact consumers psychologically, encouraging
more saving and less spending.
-2% -2
90 92 94 96 98 00 02 04 06 08**
2008 National Economic Outlook
Export Activity Rising as U.S. Dollar Falls ◆ Slower Economic Growth Expected. GDP is forecast to rise 2.1 percent
U.S. Dollar - Major Currency Index
in 2008, following an estimated gain of 2.5 percent in 2007. Stronger
120 Exports as a Percentage of GDP
14% exports and a healthy corporate sector will support expansion. The
U.S. Dollar (Avg. Exchange Value -
housing market will remain a drag, shaving up to 0.75 percentage points

Major Currency Index)
off of overall GDP growth.

Exports as a % of GDP
105 12%
◆ Trade Deficit Narrowing. The U.S. dollar has weakened dramatically

90 10% against foreign currencies over the past few years. The decline is dis-
concerting to many Americans but is boosting foreign demand for U.S.
75 8% goods and services. Net exports are contributing to annual GDP
growth for the first time since 1991, a trend we anticipate will continue
60 6% through 2008.
91 93 95 97 99 01 03 05 07*
◆ Job Growth Moderating. Total nonfarm employment growth is forecast
High Oil Prices Impacting Retail Sales Growth at 0.9 percent this year, or 1.25 million jobs. In 2007, job creation reached
Oil Prices Retail Sales
an estimated 1.7 million positions, or 1.2 percent, though figures are
$100 8% subject to revision.
Retail Sales (Annual Change)
Oil Price per Barrel (WTI)
◆ Wage Pressures to Ease. The unemployment rate is expected to rise to

$75 6%
the low- to mid-5 percent range this year. With more slack in the labor
market, employers will be under less pressure to raise wages. The decel-
$50 4%
eration in wage growth will hamper consumer spending, but the
alternative of accelerating inflation could restrict the Fed’s ability to
$25 2%
stimulate the broader economy.
$0 0% ◆ Pros and Cons of Globalization. Foreign holdings of long-term U.S.
91 93 95 97 99 01 03 05 07* Treasury debt account for more than half of the total, creating greater
vulnerability to shifts in international capital flows. A major selloff is
* Estimate ** Forecast unlikely, however, as the U.S. is an integral part of the global economy.

National Retail Overview
Slower Consumer Spending Limiting Retailer

Expansion, Developers Pull Back
Retail Construction
R
etail construction has slowed, reducing the impact that moderating retail
sales growth and store closures will have on vacancy. Several major Regional Mall/Lifestyle
chains began to scale back expansion plans last year in anticipation of Neighborhood/Community
Square Feet Completed (millions)

160
Other Retail
slower growth, and further reductions are expected this year. The housing
downturn is placing some strain on retailers, particularly home improvement 120
and furnishings chains. Slower sales growth is partially attributable to reduced
cash out refinancing activity, though the direct impact of home equity 80
withdrawal on overall personal consumption expenditures peaked at just 2
percent of the total. Aside from a few larger home furnishings chains, closures 40
should be concentrated among local retailers and smaller chains, leaving no
major holes in any one segment of the market. Retail in mixed-use properties 0
should be less vulnerable to economic slowdowns due to their built-in 99 00 01 02 03 04 05 06 07* 08**
consumer base.
Changing consumer preferences are pushing developers in new Retail Vacancy Trends
Overall Vacancy Neighborhood/Community
directions, ranging from massive suburban lifestyle centers to high-density Center Vacancy
mixed-use projects in urban cores. If nothing else, U.S. shoppers are increas- 12%
ingly efficient, visiting the mall less frequently but spending more each visit.
Convenience is important, even in the grocery industry, as evidenced by 10%
Vacancy Rate
consumers’ penchant for prepared foods. Large-scale grocery formats could
be put to the test this year as U.K.-based Tesco enters the U.S. market, 8%
focusing first on Southern California, Arizona and Nevada. The retailer’s

smaller-scale concept is designed as a convenient alternative to massive 6%
grocery stores and has proven highly successful abroad. Nationwide,

performance among grocery-anchored centers is mixed, as those with top- 4%
99 00 01 02 03 04 05 06 07* 08**
ranked chains such as Kroger and Publix are holding up well. Smaller
grocery chains are having difficulty maintaining market share; however, the
loss of a grocery anchor has been a boon for some owners, providing an
opportunity to renovate and reposition close-in shopping centers. Retail Absorption and Retail Sales Trends
Retail Absorption
240 10%
Square Feet Absorbed (millions)
Retail Sales, Less Auto

2008 National Retail Market Outlook
Retail Sales, Less Auto (Y-O-Y)

180 8%
◆ Construction Slowing. Completions are forecast at 125 million square feet
this year, down from 145 million square feet in 2007. Development
120 6%
remains largely tenant driven, with big-box retailers and other built-to-
suit properties accounting for 40 percent of the space under way.
60 4%
◆ Development of Large Centers Up. Several large regional malls/lifestyle

0 2%
centers are slated to come online this year. Large shopping center
93 95 97 99 01 03 05 07**
openings will total 10 million square feet in 2008, almost equivalent to 2007
but two times the total delivered in 2006.
◆ Uptick in Vacancy Expected. Overall vacancy is forecast to rise 50 basis Shopping Center Rent Trends
points in 2008 to 10.2 percent, following a 90 basis point increase last $21
Average Asking Rents
8%
Annual Change
year. Approximately two-thirds of the space scheduled for completion
this year is already pre-leased.
Average Asking Rent
$18 6%
Annual Change
◆ Shopping Center Vacancy Below Average. Neighborhood and

$15 4%
community center vacancy increased over the past year, but it remains
200 basis points below the overall average. Vacancy in this segment will
$12 2%
rise in 2008 as major chains scale back expansion plans and some of the
smaller retailers occupying inline space are forced to close up shop.
$9 0%
92 94 96 98 00 02 04 06 08**
◆ Rent Growth Moderating. Asking rents are forecast to rise 2.6 percent
this year to approximately $20 per square foot. Owners are expected to
increase concessions, limiting effective rent growth to 2 percent. * Estimate ** Forecast

Capital Markets
Financing Sources Shifting, Tighter

Underwriting Here to Stay
Inflation and Interest Rate Trends
C
ommercial real estate lenders will continue to closely scrutinize under-
Fed Funds Rate writing assumptions, as well as borrowers’ and tenant credit quality
8% Core Inflation this year. Loan-to-values (LTVs) have declined dramatically over the
10-Year Treasury
Interest Rates/Core Inflation
past year, and lender spreads reflect the perception of greater risk in the
6% marketplace. The change in the financing climate, however, represents a turn
toward more normalized standards, ultimately benefiting the retail market by
4% reducing speculation and construction. Retail lending requirements, like
other property sectors, are becoming increasingly dependent on tenant credit
2%
and property quality, as well as location. The most sought after assets, such
as major drugstores and shopping centers anchored by top grocers, will find
the most favorable rates and terms available. Lower LTVs and higher debt-
0%
97 98 99 00 01 02 03 04 05 06 07* service coverage ratios (DSCR) for lower-quality assets, on the other hand,
could make it challenging to get some deals to pencil out. Owners who need
to refinance lower-quality assets this year may be required to contribute
CMBS Delinquency Still Low additional equity to meet current LTVs. Many owners may choose to sell
2.0%
Office Industrial Retail Multi-Family instead, creating strong buying opportunities for low-leverage investors.
CMBS Delinquency Rates
Life insurance companies, credit unions, and local and regional banks
1.5%
will continue to gain market share lost to conduits in recent years. Portfolio
lender spreads for retail properties are currently 30 basis points to 100 basis
1.0% points lower than conduits, depending on the type of retailer and tenants’
credit quality. Approximately 40 percent of investors who purchased major
0.5% retail properties prior to last year’s credit crunch relied on CMBS financing;
this figure includes the majority of TIC and private equity buyers. The lack
0.0% of CMBS capital will have the least effect on the lower price ranges, where
00 01 02 03 04 05 06 3Q07
investors have generally relied on funding from regional and local banks.
2008 Capital Markets Outlook

Historical Conduit Lender Spreads
Retail Properties ◆ Delinquency Rates Ticking Up, but Still Low. CMBS delinquency is
Anchored Unanchored
Avg. Spread over 10-Year at YE (bps)
300
expected to post a modest uptick this year, driven by loans originated in
2006 and 2007, when underwriting assumptions were most lax. Retail
250 CMBS delinquency is currently less than 0.25 percent.
◆ Global Efforts to Restore Liquidity. Following the December 2007 rate

200
cut, the Fed introduced a new auction tool that will allow banks to bid for
150
loans using a wider range of collateral. Other central banks have
announced similar plans to add liquidity to the market. These measures
100
could open the door to restoring confidence in the credit markets.
01 02 03 04 05 06 07*
◆ Long-Term Rates Low. Economic concerns have resulted in a flight to safety,
pushing the 10-year Treasury yield down from 5.3 percent in August 2007 to
U.S. CMBS Issuance a low of 3.9 percent in November. The 10-year Treasury yield is expected to
$80
range from 4 percent and 4.25 percent in 2008 but may rise further if housing
and capital markets improve as expected, shifting capital out of bonds.
CMBS Issuance (billions)
$60 ◆ Further Fed Action Anticipated. The Fed continues to reiterate its intent
to act as needed to prevent recession. The fed funds rate ended 2007 at
$40 4.25 percent, down from 5.25 percent prior to the capital markets shock.
Additional fed funds and discount rate cuts could be in store for 2008,
$20 assuming the recent uptick in inflation reverses.
$0 ◆ Lender Spreads Expected to Remain Volatile. Conduit spreads for

00 01 02 03 04 05 06 07* anchored properties currently average 250 basis points over the 10-year
Treasury, up 145 basis points from mid-2007. Portfolio lender spreads for
* Estimate anchored properties are closer to 210 basis points over.

Investment Outlook
Back to Value Creation: Tenant Credit,

Property Quality, Location
Retail Property Price Trends
R
etail investment activity is expected to pick up some momentum by this
summer after falling dramatically in the wake of last year’s capital markets 2000-2006 2007*
shock. Retail cap rates compressed by more than 200 basis points between $250
Median Price per Square Foot

2002 and 2006, while the yield on the 10-year Treasury crept up approximately
50 basis points, reducing the risk premium. Concerns of slower retail sales $200
growth, however, along with tighter underwriting standards and lenders’
overall re-pricing of risk are translating into higher cap rates. The single-tenant $150
sector will experience the steepest cap rate increases, particularly for lower-
quality assets. Lenders are requiring significantly higher equity contributions for $100
non-institutional-grade single-tenant properties, and spreads have widened to a
degree that requires some price adjustment in many cases. Cap rate increases for
$50
properties with top national credit tenants are expected to be modest, at 20 basis Single-Tenant Multi-Tenant
points to 40 basis points. A slowdown in 1031-exchange capital coming out of
coastal apartment markets will continue to dampen sales activity.
Retail Cap Rate Trends
Tighter lending standards and slower economic growth will encourage Single-Tenant Multi-Tenant
many owners to comb through their portfolios, selling underperforming assets 12%
or properties that fall outside of core business strategies. Owners may find that
Average Cap Rate

the financing they have in place plays a major role in the marketability and value 10%
of their properties. For example, investors who purchased assets over the past
few years with high-leverage interest-only loans may need to reduce pricing 8%
expectations, particularly if their property is facing near-term lease rollovers.
With supply and demand fundamentals generally well balanced, large centers 6%
are expected to stay in high demand as institutional investors, particularly
pension funds, ramp up acquisitions this year. 4%
00 01 02 03 04 05 06 07*
2008 Investment Outlook
Real Estate Outperforms Stock Market
◆ Emerging Opportunities. The flight to quality, which has focused many Over the Long Term
Total Compounded Return (as of 3Q07)
investors on top-tier assets in primary markets, may translate into buying 300% 1-year 5-year 10-year
opportunities for value-add investors. Additionally, cash and low-leverage
buyers with strong lender relationships will be at an advantage. 225%
◆ Foreign Investors Go Shopping. A more than 20 percent decline in the 150%

U.S. dollar since 2002 has generated significant demand for U.S. real estate,
a trend that will remain in force this year. Retail properties accounted for 75%
more than one-third of major foreign commercial real estate purchases last
year, nearly matching activity in the office sector. 0%
◆ Retail Returns Healthy. Retail was the most stable performer among S&P 500 Apartment Office Retail
major commercial real estate sectors through the last economic slowdown
and therefore did not undergo a recovery cycle like apartments and office. Slowdown in Sales
As a result, total returns are comparatively lower for retail over the past Concentrated in Lower Price Range
12 months. Over the long term, however, retail returns remain in excess of 24% Change in Price Change in Sales
those for other core property types and stocks.
Change 2006 - 2007*
12%
◆ Modest Price Correction Anticipated. After skyrocketing 80 percent since
2002, retail prices are expected to retreat moderately. Correction will be
0%
concentrated in the lower tiers, where cap rates could rise more than 100
basis points, depending on asset quality, tenants’ credit and location.
-12%
◆ Shopping Centers Going Green. The incremental cost of building “green”

-24%
averages 5 to 10 percent, but can exceed 20 percent for some components. $1M-$9.99M $10M-$19.99M $20M+
Shopping center owners may be able to recover some of the cost through
incentives offered by local municipalities; however, it remains to be seen if
retail property buyers are willing to pay premiums for green properties. * Estimate ** Forecast

Atlanta Down 1 Place 2008 Rank: 15 2007 Rank: 14
Higher-than-Average Growth Keeps

Investor Interest Healthy in Atlanta
T
Employment Growth vs. Retail Sales he Atlanta retail market will record steady gains in 2008, supported by
Employment Retail Sales above-average hiring activity. Employment growth will be widespread
12% across industries, with nearly every sector of the economy expected to
add jobs. Firms continue to cite Atlanta’s well-educated work force and
Year-over-Year Change
9% diversified mix of businesses as reasons for their relocation. For example,

Winpro Inc., a global IT services company, announced plans late last year to
6% relocate its global software division to Atlanta, a move that will create nearly
1,000 jobs over the next several years. Expanding businesses continue to
3%
attract individuals to the metro, as estimates point toward a 2 percent
population gain, or an additional 108,000 residents, this year. As a result,
retail sales will record above-average growth, albeit slower than last year. As
0%
04 05 06 07* 08** demand moderates, development activity will remain at elevated levels.
Completions are expected to decline only 4 percent in 2008, although con-
struction levels will ease over the next several years.
Retail Completions
8
Retail investment velocity in Atlanta has cooled somewhat due to the
Square Feet (millions)
widening expectations gap between buyers and sellers. In the near term,
6 more conservative lending standards are expected to provide modest
upward pressure on cap rates, which have already risen approximately 50
4 basis points over the past year. Cap rates for the metro’s premium properties
are projected to rise another 50 basis points in 2008, while initial yields in
2 lower-tiered assets will likely increase more significantly. For the most part,
buyers will continue to target stable core assets with national tenants, though
0 some value-add opportunities could emerge. Properties along transportation
04 05 06 07* 08** corridors, including Buckhead, Roswell and Alpharetta to the north, or areas
south of the city such as Eagle’s Landing, could be attractive to investors
Asking Rent and Vacancy Trends primarily focused on upside potential.
Asking Rent Vacancy
$19 10% 2008 Market Outlook
Asking Rent per Square Foot
$18
◆ 2008 NRI Rank: 15, Down 1 Place. Atlanta fell one spot this year, due to
9%
Vacancy Rate
low effective rent growth.

$17 8% ◆ Employment Forecast: Atlanta employers are expected to increase
payrolls 1.7 percent in 2008 with the addition of 41,000 positions. Last
$16 7% year, 56,000 jobs were created.
◆ Construction Forecast: Retail builders are active, although deliveries are

$15 6%
04 05 06 07* 08** beginning to slow. Developers will complete 4.9 million square feet this
year, down from 5.1 million square feet in 2007.
Sales Trends ◆ Vacancy Forecast: Construction will decline in 2008, as demand remains
Single-Tenant Multi-Tenant fairly steady, pushing vacancy down 20 basis points to 8 percent.
$300
Metrowide vacancy tends to be fairly stable, staying in the low- to mid-
8 percent range since 2004.

$250
◆ Rent Forecast: New inventory, combined with improvements to

$200 occupancy, will lead to modest rent growth. Asking rents are expected
to advance 2.1 percent to $17.77 per square foot, while effective rents
$150 will push up 1.7 percent to $16.09 per square foot.
◆ Investment Forecast: Investors may want to consider retail properties

$100
near office and residential expansion northeast of Atlanta along
03 04 05 06 07*
Interstate 85, near Buford and Suwanee. Nearly 700,000 square feet of
* Estimate ** Forecast office space is under way, generating demand for area retail.
Market Forecast Employment: 1.7% ▲ Construction: 4% ▼ Vacancy: 20 bps ▼ Asking Rents: 2.1% ▲

Up 1 Place 2008 Rank: 14 2007 Rank: 15 Austin
Retailers, Out-of-State Investors

Targeting the Austin Metro
A
ustin’s bright economic outlook continues to attract retailers, a trend that Employment Growth vs. Retail Sales
will drive development in 2008. Much of the metro’s construction is Employment Retail Sales
centered in master-planned communities to the north and south of the 10%
city center, where builders are taking advantage of newly available sites
stemming from infrastructure improvements. Additionally, major retail 8%
projects are planned or under construction at both ends of state Highway 130,
which bypasses the metro to the east. Robust retail development caused 6%
vacancy to rise last year, though the increase is expected to be short-lived, due
in part to the region’s long-term demographic and economic trends. 4%
Population and job growth are forecast to boost retail sales by nearly 5 percent
this year, one of the largest advances in the country. Going forward, household
2%
incomes for Austin’s highly educated work force will continue to outpace the 04 05 06 07* 08**
national median, which, coupled with the area’s relatively affordable housing
market, will result in further increases in disposable incomes.
Retail Completions
8
Investor interest in Austin’s retail assets will remain mixed this year as

some buyers wait out the current building boom. Sales velocity for single-
tenant assets, where cap rates are in the low- to mid-7 percent range, should 6
ease due to less exchange capital crossing over from apartment owners. As
builders rush to secure prime corners, competition for tenants will keep some 4
leveraged private buyers on the sidelines until much of the new space is
absorbed. As such, cap rates for multi-tenant properties, which currently 2
change hands in the high-7 percent to low-8 percent range, could push higher.
Investors with a penchant for repositioning projects may want to look to 0
assets in the city center, where high-end multi-family towers have increased 04 05 06 07* 08**
population density. Elsewhere, multi-tenant assets in areas adjacent to the
Central/Downtown Austin submarket are shielded from overbuilding in the Asking Rent and Vacancy Trends
suburbs and will subsequently attract local investors. Asking Rent Vacancy
$22 14%
2008 Market Outlook

$20 12%
Vacancy Rate
◆ 2008 NRI Rank: 14, Up 1 Place. Above-average employment growth,
strong retail sales and healthy rent gains bumped Austin up one place
$18 10%
in this year’s index.
◆ Employment Forecast: After adding 21,000 positions last year, Austin $16 8%
employers will expand payrolls at one of the fastest rates in the country
again in 2008, creating 18,000 jobs for a 2.4 percent increase. $14 6%
04 05 06 07* 08**
◆ Construction Forecast: Construction activity, while down from last year’s
pace, will boost metrowide stock by nearly 4 percent with the addition of
Sales Trends
2 million square feet of retail space.
Single-Tenant Multi-Tenant
$300
◆ Vacancy Forecast: Vacancy is expected to increase 20 basis points to 11.4
percent in 2008. Last year, record construction activity caused

$250
metrowide vacancy to spike 320 basis points.
◆ Rent Forecast: Premium rents for new space will push asking rents up $200
3.2 percent this year to $20.51 per square foot, while effective rents will
advance 3 percent to $18.43 per square foot. In 2007, asking and effective $150
rents gained 4.1 percent and 3.5 percent, respectively.
◆ Investment Forecast: Employment and population growth in the Round $100

03 04 05 06 07*
Rock/Williamson County submarket will outpace the metro this year,
supporting lower vacancy and generating healthy revenue growth. * Estimate ** Forecast
Market Forecast Employment: 2.4% ▲ Construction: 59% ▼ Vacancy: 20 bps ▲ Asking Rents: 3.2% ▲

Boston Up 1 Place 2008 Rank: 17 2007 Rank: 18
Institutions Actively Seek Access into

Boston’s Stable Retail Market
T
Employment Growth vs. Retail Sales he outlook for Boston’s retail market remains bright, supported by
Employment Retail Sales healthy development activity, strong leasing trends and an active
8% investment market. The metro’s retail supply is expanding, as redevel-
opment of older shopping centers and malls is being generated by consumer
6% and retailer demand for a unique “live, work, play” experience. These revi-
talization efforts are transforming the area’s outdated shopping destinations
4% such as the Natick Mall into mixed-use lifestyle centers that are attracting top
retailers including Neiman Marcus and Gucci. New retail construction is
2%
expected to increase inventory more than 1 percent by year end, causing a
short-term uptick in the metrowide vacancy rate, which has remained
essentially unchanged over the past five years. With vacancy fairly stable
0%
04 05 06 07* 08** and demand healthy, owners will be able to implement steady rent increases
again in 2008. Continued employment growth will generate demand, and
retail sales are expected to advance at a slower pace than last year, following
Retail Completions
the national trend.
4
Boston’s retail investment market remains strong, and competition

3 among investors will keep transaction velocity at healthy levels. Local
investors still comprise the majority of sellers, while institutional buyers are
2 playing a larger role as they seek to expand holdings within Boston’s stable
retail market. Buying activity has compressed cap rates into the low-7
1 percent range, down nearly 100 basis points over the past year, with rates
likely to stabilize going forward as a result of more conservative underwrit-
0 ing. Investment activity continues to focus primarily on stable assets near the
04 05 06 07* 08** city center, where competition remains healthy and consumer demand is
elevated. Buyers seeking value-add plays may consider investments near
Asking Rent and Vacancy Trends redevelopment and mixed-use projects such as Natick Collection and
Asking Rent Vacancy Seaport Square, particularly in the metro’s vibrant urban core.
$24 8%
2008 Market Outlook

$22 7%
Vacancy Rate
◆ 2008 NRI Rank: 17, Up 1 Place. Above-average effective rent growth

and a low vacancy rate moved Boston up one place in this year’s NRI.
$20 6%
◆ Employment Forecast: Boston employers are expected to increase

$18 5% payrolls 1.1 percent in 2008 with the addition of 25,100 positions. Last
year, 26,700 new jobs were created.
$16 4%
04 05 06 07* 08**
◆ Construction Forecast: Retail development is picking up in Boston, and
area builders are projected to bring 2.1 million square feet online by year
Sales Trends end, up from the 1.9 million square feet delivered in 2007.
$250
◆ Vacancy Forecast: New construction will modestly outpace absorption
this year. Retail vacancy is forecast to inch up 20 basis points to 5.3

$200 percent in 2008 after shedding 20 basis points last year.
$150 ◆ Rent Forecast: Rents continue to climb at a measured pace. Asking rents
are expected to advance 3.3 percent to $22.28 per square foot this year,
$100
while effective rents will gain 3.2 percent to $20.66 per square foot.
◆ Investment Forecast: Investment opportunities persist for redevelop-

$50 ment efforts in Boston’s urban core. Due to high barriers to entry, upside
03 04 05 06 07*
potential exists in assets that have been repositioned to capitalize on the
* Estimate ** Forecast metro’s steady retail demand.
Market Forecast Employment: 1.1% ▲ Construction: 11% ▲ Vacancy: 20 bps ▲ Asking Rents: 3.3% ▲

Down 1 Place 2008 Rank: 33 2007 Rank: 32 Charlotte
Despite Softer Space Demand, Buyers Drawn

to Charlotte’s Long-Term Growth Potential
C
harlotte’s prospects for sustainable, long-term economic growth Employment Growth vs. Retail Sales
support a positive outlook for its retail market. The metro’s large Employment Retail Sales
banking and financial services employers could feel some of the effects 12%
of the slowing national economy; however, overall employment growth
remains quite strong. Forecasts call for another year of above-average 9%
employment gains, led by the educational and health services sector.
Subsequently, consumer confidence in the metro has remained fairly 6%
healthy, and future spending is expected to advance at a modest clip. Major
retailers are taking notice, with IKEA, Whole Foods and Crate & Barrel 3%
entering the market. Despite the presence of new retailers, construction will
decline in 2008 from the last two years, keeping vacancy stable.
0%
04 05 06 07* 08**
Charlotte’s retail investment market will remain the focus of many local
and out-of-state investors, attracted by the area’s strong long-term economic
Retail Completions
outlook and above-average initial yields. Transaction velocity is being
4
augmented by East Coast capital, primarily from southern Florida, New

York and Boston. Looking forward, more conservative underwriting could
drive up cap rates 20 basis points to 50 basis points for core assets, where 3
rates currently average in the low- to mid-7 percent range. Buyers are
expected to target the metro’s best assets, and cap rates in the lower tiers 2
could rise as much as 100 basis points in 2008. Investors may want to
consider redevelopment opportunities along the south corridor of 1
Charlotte’s new light-rail project. Development is driving interest for real
estate in the area, which could potentially support increased, long-term 0
investor and retailer demand. Additionally, buyers may want to investigate 04 05 06 07* 08**
properties along U.S. 521, as retailers continue to follow residential
expansion into Lancaster County. Asking Rent and Vacancy Trends
Asking Rent Vacancy
$19 11%
2008 Market Outlook
◆ 2008 NRI Rank: 33, Down 1 Place. Despite strong job growth, Charlotte $18 10%
Vacancy Rate
fell one place in this year’s index due to increasing concessions.
$17 9%
◆ Employment Forecast: Employers in Charlotte are forecast to expand
payrolls by 1.8 percent in 2008 with the addition of 15,400 positions. $16 8%
◆ Construction Forecast: Developers will add 1.7 million square feet to the $15 7%
Charlotte market this year, boosting inventory by an estimated 2 percent. 04 05 06 07* 08**
◆ Vacancy Forecast: After rising 10 basis points last year, vacancy is Sales Trends
expected to remain stable at 8.5 percent in 2008. Continued residential Single-Tenant Multi-Tenant
growth in the North submarket, however, will drive retailer demand, $300
pushing the area’s vacancy rate down 50 basis points to 14.3 percent.
$240
◆ Rent Forecast: Metrowide asking rents are forecast to advance 2.3
percent to $18.15 per square foot by year end, while effective rents will $180
push 2 percent higher to $16.07 per square foot.
$120
◆ Investment Forecast: Investment activity will remain near current levels
as velocity is supported by both local and out-of-market investors.
Buyers will likely focus on properties with national credit tenants in the $60
03 04 05 06 07*
Inner Southeast and Outer Southeast submarkets, where residential
growth is most pronounced. * Estimate ** Forecast
Market Forecast Employment: 1.8% ▲ Construction: 26% ▼ Vacancy: 0 bps ■ Asking Rents: 2.3% ▲

Chicago Down 3 Places 2008 Rank: 25 2007 Rank: 22
Investors Active in Chicago Suburbs,

Vacancy to Remain Tight Downtown
D
Employment Growth vs. Retail Sales evelopers will trim new property completions in the Chicago market
Employment Retail Sales this year, but a slower rate of economic growth and consumer spending
8% will reduce tenant demand, leading to a slight increase in vacancy. The
vacancy rate in urban submarkets is expected to rise nearly 50 basis points to
6% the low-6 percent range this year due to the projected easing in demand
generators, and rent growth will total approximately 2.5 percent. On the
4% supply side, several land parcels were purchased in the city of Chicago over
the past year, including a combined 12 acres at 1101 S. Wells Street and 1000
2%
S. Clark Street. The buyer plans to develop 1,000 condos and a 400,000-square
foot retail component. Builders will continue to target attractive sites in the
year ahead, but existing property investors will maintain a strong interest in
0%
04 05 06 07* 08** single-tenant net-leased assets. Deal flow may ebb in the next few months,
however, due to lingering concerns over credit quality.
Retail Completions Vacancy in the suburban submarkets is expected to climb approximate-
10 ly 30 basis points this year to the low-9 percent range. Part of the increase is
attributable to temporary vacancy at some older shopping centers that are

8 being redeveloped, such as Northgate Plaza in DuPage County and Village
Square at Northbrook in Cook County. Builders, meanwhile, are scheduled
6
to bring 1.3 million square feet of new space online in Will County, where a
rapidly growing population is driving tenant demand; an additional 1.2
million square feet is planned in the county. On the investment front,
4
shopping centers in suburban submarkets are expected to trade in the 7
percent range, up from the high-6 percent range that prevailed through the
2 middle of last year. Shopping centers in established, heavily traveled areas of
04 05 06 07* 08**
DuPage and Cook counties will trade most easily, but properties in Kane and
Will counties are also starting to stir investors’ interest.
Asking Rent and Vacancy Trends
Asking Rent Vacancy
$22
2008 Market Outlook
10%
◆ 2008 NRI Rank: 25, Down 3 Places. Slowing employment growth and
$20 9% rising vacancy pushed Chicago down three places in this year’s NRI.
Vacancy Rate
◆ Employment Forecast: After adding 44,700 positions in 2007, employers

$18 8%
will create 30,000 jobs this year, a 0.7 percent increase, due primarily to
reduced hiring in the financial activities sector. In Lake and Kenosha
$16 7% counties, 900 new jobs are forecast, while 1,300 positions are projected in
Indiana counties.
$14 6%
04 05 06 07* 08** ◆ Construction Forecast: In 2008, developers will complete 5.1 million
square feet, down from 9.5 million square feet last year. Approximately
Sales Trends 1.5 million square feet is slated for delivery downtown, and 3.6 million
square feet will come online in the suburbs.
$300
Vacancy Forecast: Net absorption will remain positive but will exceed
$250 supply growth, leading to a 30 basis point rise in the vacancy rate to 8.2
percent this year.
$200 ◆ Rent Forecast: Asking and effective rents will each gain 3 percent in
2008 to $20.13 per square foot and $18.12 per square foot, respectively.
$150
◆ Investment Forecast: The influx of new properties in the suburbs,
totaling more than 11 million square feet in 2007 and 2008, has left many
$100 older properties in need of re-tenanting and upgrading. As a result,
03 04 05 06 07*
value-add investors with long-term horizons will be more apt to look to
* Estimate ** Forecast properties in suburban Cook and DuPage counties in the year ahead.
Market Forecast Employment: 0.7% ▲ Construction: 46% ▼ Vacancy: 30 bps ▲ Asking Rents: 3% ▲

Up 2 Places 2008 Rank: 40 2007 Rank: 42 Cincinnati
Cincinnati Retail Cap Rates Holding Steady,

Despite Economic Headwind
C
incinnati’s retail market will be relatively stable in 2008, characterized Employment Growth vs. Retail Sales
by moderate development and the addition of national and interna- Employment Retail Sales
tional tenants to the retailer mix. Employment growth is expected to 8%
ease in 2008, though expansion will be led by the higher-paying profession-
al and business services sector, which will account for nearly 3,900 new 6%
positions. Despite forecasts calling for more restrained sales growth in 2008,
retailers including IKEA, Crate & Barrel and Dillard’s are expanding into the 4%
metro’s outlying suburban markets. Meanwhile, infill and redevelopment
efforts, including the mixed-use Banks, continue in the downtown area. 2%
Going forward, deliveries will put some upward pressure on vacancy in the
near term, but developers are responding to cooling in the local economy by
0%
reducing the planning pipeline to only 2.5 million square feet. Some of these 04 05 06 07* 08**
projects will likely be canceled or delayed until the economy rebounds,
allowing owners to raise rents modestly over the next few years.
Retail Completions
4
After peaking two years ago, transaction velocity in the Cincinnati retail

market is expected to slow to more normalized levels this year. Institutional
investors will likely account for much of the buying activity, attracted to the 3
metro’s above-average cap rates, which are projected to stay in the high-7
percent to low-8 percent range. Owners should note, however, that with 2
institutional investors accounting for an increasing share of the buyer pool, a
large number of Class A properties could change hands in the near term, 1
potentially driving marketwide prices higher. Long-term investors may
want to consider opportunities located near high-end residential expansion 0
along the waterfront, where the metro is experiencing urban renewal, 04 05 06 07* 08**
generating demand for area retail.
2008 Market Outlook Asking Rent Vacancy
$16 12%
◆ 2008 NRI Rank: 40, Up 2 Places. Below-average retail sales and job
growth kept Cincinnati near the bottom of the index this year. $15 11%
Vacancy Rate
◆ Employment Forecast: Cincinnati employers are forecast to expand
$14 10%
payrolls by 0.4 percent this year, adding 4,000 jobs.
◆ Construction Forecast: Developers have averaged approximately 1.7 $13 9%

million square feet of new retail space annually over the past five years.
In 2008, completions are expected to total 1.6 million square feet, down $12 8%
04 05 06 07* 08**
16 percent from last year.
◆ Vacancy Forecast: Cooling retail sales growth will likely slow Sales Trends
absorption in 2008, pushing vacancy up 10 basis points to 10.4 percent. Single-Tenant Multi-Tenant
$200
Vacancy declined 30 basis points last year.
◆ Rent Forecast: Higher vacancy will result in slower rent growth this $150
year, following a healthy gain in 2007. Asking rents are forecast to rise
2.2 percent to $15.09 per square foot by year end, while effective rents $100
advance 2.1 percent to $13.20 per square foot.
$50
◆ Investment Forecast: Buyers might consider opportunities in the
Northeast Hamilton/Blue Ash submarket. Businesses including Oracle
continue to expand within the submarket, supporting growing demand $0
03 04 05 06 07*
for retail. Minimal new stock in the area will lead to increasingly tight
market conditions and above-average revenue growth. * Estimate ** Forecast

Cleveland Down 2 Places 2008 Rank: 43 2007 Rank: 41
Cleveland Development Highlighted by

Downtown Mixed-Use Projects
C
Employment Growth vs. Retail Sales leveland’s retail market will experience some softening due to new
Employment Retail Sales supply and slowing sales growth this year. Fortunately, the market is
6% nearing the end of a recent a spike in retail development, and there is
only 1.3 million square feet in the planning phases for delivery beginning in
4% 2009. The Flats East Bank and the Warehouse District, two substantial
projects in the downtown area, are expected to include more than 500,000
2% square feet of retail, as well as nearly 1 million square feet of office space and
approximately 1,000 residential units. While the scheduled completion of
0%
these developments is two years away, they are expected to renew interest in
the downtown area, sparking retailer demand in and around the city.
Beyond the city’s core, the Avon/Westlake submarket remains a focal point
-2%
04 05 06 07* 08** for retailers, following the area’s considerable residential growth.
Cleveland retail investors are expected to remain cautious in 2008,

Retail Completions
causing sales velocity to decline modestly. Despite some uncertainty, cap
4
rates have remained fairly stable, averaging in the the high-7 percent to low-
8 percent range. Moderating demand, combined with conservative credit

3 markets, however, will likely put some upward pressure on cap rates this
year. More than one-third of buyers involved in the metro’s large deals are
2 foreign, while nearly half of all sellers are local. Foreign demand is expected
to provide support to transaction velocity in the metro, particularly as the
1 U.S. dollar remains weak. Going forward, investor demand will remain
highest for Class A properties with national credit tenants, as these assets are
0 more capable of weathering slower consumer spending in the near term,
04 05 06 07* 08** while some local retailers may be forced to close.
Asking Rent and Vacancy Trends 2008 Market Outlook

Asking Rent Vacancy
$17 10% ◆ 2008 NRI Rank: 43, Down 2 Places. Rents in Cleveland will be
essentially flat this year, resulting in a two-spot drop in the index.

$16 9%
Vacancy Rate
◆ Employment Forecast: Cleveland employers will increase payrolls

modestly this year, adding 1,100 positions for a 0.1 percent increase. In
$15 8% 2007, growth was more significant, as 4,000 jobs were created.
$14 7% ◆ Construction Forecast: In 2008, new stock will total 1.6 million square
feet, down 24 percent from last year and below the five-year annual
$13 6% average of 1.9 million square feet.
04 05 06 07* 08**
◆ Vacancy Forecast: As a result of healthy amounts of new inventory,
Sales Trends vacancy increased 30 basis points last year, and a 40 basis point uptick
Single-Tenant Multi-Tenant to 8.7 percent is forecast for 2008.
$200
◆ Rent Forecast: Cooling retailer demand and rising vacancy are limiting
$150 rent growth. Asking rents are expected to reach $15.50 per square foot
this year, up 0.2 percent, while effective rents remain unchanged at
$100 $13.91 per square foot.
◆ Investment Forecast: Investment activity is expected to continue to

$50
decline in 2008, as many buyers are waiting on the sidelines for the local
housing market to stabilize. Attractive cap rates will continue to attract
$0 foreign investors taking advantage of ongoing weakness in the U.S.
03 04 05 06 07*
dollar to the metro, a trend that is deepening the buyer pool, particular-
* Estimate ** Forecast ly in the metro’s top tiers.

Up 1 Place 2008 Rank: 37 2007 Rank: 38 Columbus
Emerging Technology Corridor Supporting

Modest Economic Expansion in Columbus
T
he Columbus market is expected to remain relatively stable in 2008, Employment Growth vs. Retail Sales
supporting the local retail market. The economy will record another Employment Retail Sales
year of modest job growth, as losses in the construction and manufac- 8%
turing sectors will be outweighed by additions to the educational and health
services, and government segments. The local economy also continues to 6%
benefit from the thousands of jobs created annually by the advancement of
the technology corridor, the presence of Ohio State University and the 4%
development of the Rickenbacker Global Logistics Park. Despite a forecast
slowdown in retail sales growth, developers remain active, and 2008 will 2%
mark the fifth consecutive year in which completions exceed 1 million square
feet. Looking forward, development of new space will begin to slow consid-
0%
erably in 2009 and continue at a moderate pace for several years. 04 05 06 07* 08**
Despite the Columbus area’s stable economic outlook, retail transaction

Retail Completions
velocity likely will remain at reduced levels, as vacancy edges higher and
4
investors examine the long-term impact of new development on existing

properties. Sales velocity declined approximately 20 percent last year, and
with fewer buyers in the market, cap rates advanced nearly 60 basis points 3
to the high-8 percent range. The metro’s more conservative investors may
want to consider core assets along the state Route 315 corridor. Assets in this 2
area are expected to command above-average prices as a result of the
stability that comes with the corridor’s proximity to the university. 1
2008 Market Outlook 0

04 05 06 07* 08**
◆ 2008 NRI Rank: 37, Up 1 Place. Columbus maintained its position as the
strongest performing Ohio market due to steady hiring and construction Asking Rent and Vacancy Trends
activity, and moved up one position this year. Asking Rent Vacancy
$14 13%
◆ Employment Forecast: Employers are expected to increase payrolls 0.4
percent in 2008 with the addition of 4,200 positions. Last year, 4,700 jobs
$13 12%
Vacancy Rate
were created in the metro.
◆ Construction Forecast: Retail development remains fairly steady, with a $12 11%
minor uptick in deliveries forecast for this year. Developers are
projected to bring 1.2 million square feet online, up from 1.1 million $11 10%
square feet in 2007. Over the past five years, construction has averaged
1.3 million square feet annually. $10 9%
04 05 06 07* 08**
◆ Vacancy Forecast: New construction will outpace absorption this year,
pushing vacancy higher. By year end, vacancy is expected to reach 11.6 Sales Trends
percent, up 40 basis points from 2007. Vacancy has stayed in the low- to Single-Tenant Multi-Tenant
$250
mid-11 percent range since 2004.
◆ Rent Forecast: As vacancy increases, owners will be hesitant to raise $200

rents significantly. Asking rents are expected to advance 1.4 percent to
$12.71 per square foot this year, while effective rents inch up just 1 $150
percent to $11.14 per square foot.
$100
◆ Investment Forecast: Buyers may find growth opportunities along the
northern Interstate 71 corridor. There are nearly 900 condos under way
in the area, with delivery scheduled through the next 18 months. Local $50
03 04 05 06 07*
owners can expect long-term retail demand to rise in line with
residential expansion. * Estimate ** Forecast

Dallas/Fort Worth Down 3 Places 2008 Rank: 27 2007 Rank: 24
Strong Dallas/Fort Worth Economy

Attracting Out-of-State Investors
D
Employment Growth vs. Retail Sales allas/Fort Worth will boast one of the strongest economies in the
Employment Retail Sales country again this year, though heightened construction activity will
12% result in a supply-demand imbalance. Builders are positioning
themselves in the path of growth in an attempt to meet demand from
9% national retailers. As such, several strip centers are expected to come online
with a significant amount of vacant space, especially in suburban
6% submarkets like Far North Fort Worth and Southwest Collin County, where
much of the new construction is concentrated. Occupancy challenges in new
3%
projects should be relatively short-lived, however, as smaller retailers will
migrate into the new developments this year, creating long-term occupancy
challenges for some older centers in first-ring suburbs. The Arlington
0%
04 05 06 07* 08** submarket will be an exception to this trend as retailers quickly expand into
new space in the burgeoning area, hoping to capture demand from both
sides of the Metroplex while leaving occupancy in older centers intact.
Retail Completions
Indeed, Arlington is forecast to rank near the top of the Metroplex’s
12
submarkets for revenue improvement and concession reductions. The Far
North Dallas submarket will exhibit the highest revenue gains, however, as
9 vacancy in the area sheds over 150 basis points.
6 The market’s long-range upside potential will help to alleviate concerns

investors may have about near-term mixed fundamentals. Multi-tenant cap
3 rates are hovering in the mid- to high-7 percent range, high enough to attract
buyers in the wake of tighter lending standards. Many out-of-state buyers
0 who invest in the metro are targeting newer, smaller properties that are
04 05 06 07* 08** largely pre-leased in the area’s high-growth suburbs. Local investors,
however, will take advantage of their in-depth market knowledge to focus
Asking Rent and Vacancy Trends on small infill properties in prime locations that can be repositioned to meet
Asking Rent Vacancy demand in emerging professional neighborhoods. Single-tenant properties
$17 16% with cap rates in the low- to mid-7 percent range will continue to attract
cash-heavy buyers and investors with residual 1031 capital.

$16 15%
Vacancy Rate
2008 Market Outlook

$15 14%
◆ 2008 NRI Rank: 27, Down 3 Places. Dallas/Fort Worth’s high vacancy
rate offsets its strong job growth and steady rent gains to fall three
$14 13% places in the NRI.
$13 12% ◆ Employment Forecast: After adding 61,100 positions in 2007, employers
04 05 06 07* 08** are expected to increase payrolls by 1.9 percent, or 57,500 jobs, this year.
◆ Construction Forecast: In 2008, 5.1 million square feet of retail space is

Sales Trends
projected to come online, up from 4 million square feet last year. Over
$250 the last five years, completions have averaged 6.5 million square feet.
◆ Vacancy Forecast: The marketwide vacancy rate is expected to increase

$200
70 basis points to 14.9 percent this year due to elevated completions.
$150 ◆ Rent Forecast: Competition from new space will limit rent growth in the
Metroplex this year. Asking rents will reach $15.90 per square foot,
$100 while effective rents will finish the year at $14.18 per square foot, gains
of 2.3 percent and 2 percent, respectively.
$50 ◆ Investment Forecast: Investors with a penchant for repositioning assets
03 04 05 06 07*
may want to look to the west of downtown Fort Worth, where spillover
* Estimate ** Forecast demand is improving prospects and revitalization efforts.

Up 6 Places 2008 Rank: 19 2007 Rank: 25 Denver
Transit-Oriented Development Plans

Drive Mixed-Use Projects in Denver
D
evelopers are responding to modest economic expansion in Denver Employment Growth vs. Retail Sales
this year by slowing the pace of retail construction, which should Employment Retail Sales
support steady operating performance. The cooling housing market 8%
will cause retail sales growth to moderate this year, but an expanding
population and healthy employment growth bolster the region’s extended 6%
economic outlook. Job growth is expected to be widespread again in 2008,
with the leisure and hospitality sector, which typically serves as a peripheral 4%
gauge of overall retail health, forecast to post significant gains. As a result of
stable demand and reduced construction activity, vacancy is forecast to 2%
tighten by year end. On the supply side, developers are concentrating on
high-density mixed-use projects, particularly in urban infill locations.
0%
Builders and tenants will likely target locations near Denver’s FasTracks 04 05 06 07* 08**
light-rail stops, such as the 335,000-square foot mixed-use development that
recently broke ground at 16th and Delgany streets. Extensions of the light-
Retail Completions
rail system along major freight corridors and routes that link suburbs to
8
downtown may also offer redevelopment opportunities.

Denver’s underlying strength and prospects for long-term stability will 6
sustain investor demand for retail properties in 2008. Cap rates for older
shopping centers, however, will continue to rise due to an increased use of 4
concessions in an effort to attract and retain tenants. Last year, shopping
center cap rates rose approximately 30 basis points to the mid-7 percent 2
range. Cap rates for single-tenant properties, on the other hand, compressed
roughly 10 basis points to the high-6 percent range, though rates in this 0
segment are projected to reverse course in 2008 as sales velocity slows. Local 04 05 06 07* 08**
investors are expected to actively seek stable infill locations with credit-
worthy tenants, particularly in the Midtown/CBD submarket, where Asking Rent and Vacancy Trends
housing demand continues to grow. Asking Rent Vacancy
$18 10%
2008 Market Outlook

$17 9%
Vacancy Rate
◆ 2008 NRI Rank: 19, Up 6 Places. Denver moved up six places in the
index this year due to more modest construction, a vacancy decline and
$16 8%
above-average retail sales growth.
◆ Employment Forecast: The Denver metro is expected to add 13,200 jobs $15 7%
this year, a 1.1 percent uptick but down from 20,700 positions in 2007.
$14 6%
◆ Construction Forecast: Developers will deliver 2.5 million square feet of 04 05 06 07* 08**
retail space to the metro in 2008; 3.6 million square feet came online last
year. Projects in Aurora and the Northwest submarket will account for
Sales Trends
more than half of this year’s anticipated deliveries.
$250
◆ Vacancy Forecast: Vacancy is expected to finish the year at 7.4 percent,
down 30 basis points from 2007. Last year, when deliveries were higher,
$200
vacancy rose 40 basis points.
◆ Rent Forecast: In 2008, asking rents are forecast to increase 2.7 percent $150
to $17.36 per square foot, while effective rents gain 2.8 percent to $15.52
per square foot. $100
◆ Investment Forecast: Investors may want to explore options along the

Interstate 25 corridor in the Northeast submarket, where office-using job $50
03 04 05 06 07*
growth continues to augment the daytime population, increasing traffic
counts in the area. * Estimate ** Forecast

Detroit Down 1 Place 2008 Rank: 41 2007 Rank: 40
High Cap Rates Attracting Yield-Seeking

Investors to Detroit’s Single-Tenant Assets
D
Employment Growth vs. Retail Sales etroit’s economy will improve modestly in 2008, though gains will not
Employment Retail Sales be strong enough to overcome the effects of new retail supply. Layoffs
4% in the auto industry are expected to remain a drag on local
employment, and retail spending growth, while positive, will come in well
2% below the national average this year. As such, new developments will
compete intensely with existing retail centers for tenants and with other
0% venues for sales. The three local casinos, for example, are investing $1.5
billion in various plans to improve their businesses, and a new horse-racing
-2%
track near Detroit Metro Airport could come online as soon as the third
quarter. On the supply side, developers continue to slow the rate of
inventory expansion and focus on high-end developments, such as the long-
-4%
04 05 06 07* 08** awaited 550,000-square foot Bloomfield Park project, which will break
ground in 2008.
Retail Completions
Investment activity in the metro declined by approximately 35 percent
8
in 2007 and could ease again this year as investors retrench into more stable
assets with tenants under long-term leases. Deals with assumable financing
6 already in place could garner comparatively high attention from out-of-state
buyers looking to expand their portfolios at affordable prices. Single-tenant
4 sales activity in Detroit has been fairly active, as cap rates that average in the
low- to mid-7 percent range are high enough to attract investors seeking
2 competitive initial yields. Deal flow for multi-tenant assets, however, will be
sporadic, despite cap rates in the high-7 percent to low-8 percent range, as
0 older centers in particular will likely experience long marketing times. The
04 05 06 07* 08** median price pushed higher in 2007, largely as a result of investors targeting
newer properties in affluent neighborhoods such as Bloomfield Hills.
Asking Rent and Vacancy Trends Investors may find attractive investment opportunities near new condo
Asking Rent Vacancy developments, as these properties can be acquired for favorable prices and
$19 12% potentially repositioned if the economy improves.

Vacancy Rate
$17 10% ◆ 2008 NRI Rank: 41, Down 1 Place. Minimal employment and retail sales
growth caused Detroit to slip one position in this year’s NRI.
$16 9%
◆ Employment Forecast: Employers are expected to add 1,600 positions in
2008, an increase of 0.1 percent. Last year, losses totaled 29,000 jobs.
$15 8%
04 05 06 07* 08**
◆ Construction Forecast: Construction activity should ease this year.
Developers are projected to bring 1.4 million square feet of space online,
Sales Trends expanding inventory by less than 1 percent.
$160
◆ Vacancy Forecast: After remaining flat in 2007, vacancy will increase 40
basis points this year to 10.1 percent as a result of new construction and
$140
minimal job growth.
$120 ◆ Rent Forecast: Modest demand for retail space will limit rent growth in
2008. Asking rents are expected to gain 2 percent to $17.70 per square
$100 foot, while effective rents increase 1.9 percent to $16.11 per square foot.
◆ Investment Forecast: The mixed-use Pavilions of Troy will add over

$80 600,000 square feet of retail space to inventory, and its proximity to
03 04 05 06 07*
Somerset Mall will improve the local retail climate and may drive some
* Estimate ** Forecast additional investment activity.

Down 9 Places 2008 Rank: 11 2007 Rank: 2 Fort Lauderdale
A Year of Adjustment Ahead in Broward

County, Long-Term Prospects Favorable
W
hile the long-term outlook for Broward County retail properties Employment Growth vs. Retail Sales
remains quite bright due to household growth and greater Employment Retail Sales
population density, more modest results should be expected this 8%
year. Net absorption will be positive in 2008 but will fall short of annual
gains posted during the recent housing boom. In the near term, newer Class 6%
A shopping centers, especially those located in high-growth areas west of
Florida’s Turnpike, are likely to outperform. Owners of such properties 4%
should expect to fill vacancies relatively quickly, while re-leasing times are
likely to stretch out for older assets, where greater concessions may be 2%
needed to attract tenants. Meanwhile, completions are forecast to slow in
2008 and will continue to ease over the next few years as developers respond
0%
to a significant decrease in housing permits. 04 05 06 07* 08**
In the investment market, the pace of activity in early 2008 will continue
Retail Completions
to adjust to new financing spreads. Properties with attractive and assumable
2.0
financing already in place will draw the greatest interest in the months

ahead, as buyers continue to encounter obstacles in obtaining attractive
borrowing terms. Substantially occupied shopping centers located along 1.5
established trade areas, such as University Drive and state Road 7, may still
trade at cap rates in the mid-6 percent range, though some upward 1.0
movement in initial returns for lower-tiered properties should be expected.
In the lower tiers, assets where a buyer has an opportunity to either raise 0.5
rents to market level or eventually fill excess vacancy could trade at cap rates
starting at approximately 7.5 percent in the months ahead. 0.0
04 05 06 07* 08**
2008 Market Outlook
◆ 2008 NRI Rank: 11, Down 9 Places. Cooling in the local housing market Asking Rent Vacancy
will push concessions higher, causing Fort Lauderdale to fall nine spots. $22 8%
◆ Employment Forecast: Led by ongoing growth in the professional and

$20 7%
business services sector, employers will create 8,800 jobs this year, a 1.1
Vacancy Rate
percent increase. In 2007, 6,900 positions were added.
$18 6%
◆ Construction Forecast: Developers are scheduled to complete 1 million
square feet of retail space in 2008, compared with 1.9 million square feet $16 5%
last year. Most of the construction is located west of Florida’s Turnpike,
including 286,000 square feet at the second and third phases of Coral $14 4%
Landings in Coral Springs. 04 05 06 07* 08**
◆ Vacancy Forecast: A soft housing market will reduce traffic flows and Sales Trends
consumer spending growth, leading to a 60 basis point vacancy increase
to 6.4 percent by year end. $300
◆ Rent Forecast: Weaker demand at older properties will slow rent $240
growth. Asking rents are forecast to gain 2.5 percent this year to $19.90
per square foot, while effective rents advance 2.2 percent to $17.83 per
$180
square foot.
◆ Investment Forecast: New, higher-occupancy shopping centers in areas $120

such as Tamarac, Pembroke Pines or Miramar will be solid defensive
plays for conservative investors. Meanwhile, more buyers throughout $60
the metro will seek to add value by replacing expiring leases with 03 04 05 06 07*
national credit tenants.
* Estimate ** Forecast

Houston Up 2 Places 2008 Rank: 24 2007 Rank: 26
Strong Population and Job Growth

Supporting Houston’s Retail Sales
W
Employment Growth vs. Retail Sales hile demand drivers in Houston will continue to show strength, new
Employment Retail Sales supply will put upward pressure on retail vacancy in 2008. Fueled
12% by population and job growth, retail sales will expand by more than
4 percent this year, once again among the highest rates in the country. Much
9% of the population growth is in master-planned communities in outlying

suburbs, such as Montgomery County, which is expanding at twice the
6% metro rate. A wave of condos and Class A apartments catering to profession-
als within the Inner Loop and west of downtown are also increasing
3%
population density. As a result, developers are razing and constructing new
retail properties, particularly strip centers, in the area. The Pavilion at Post
Oak, for example, is being redeveloped with 286,000 square feet of new retail
0%
04 05 06 07* 08** space, despite its proximity to the Houston Galleria, one of the largest malls
in the country. On the supply side, construction is putting pressure on older
strip centers outside the Inner Loop, which may lose tenants to new con-
Retail Completions
struction in the growing suburbs or the revitalized city core.
6
Though vacancy will rise in the short term, Houston’s long-term

5 economic outlook will sustain elevated investor interest for local retail assets.
For single-tenant properties, cap rates in the high-6 percent to low-7 percent
4 range will attract buyers, especially in densely populated urban areas such
as the Galleria. Multi-tenant assets, where average yields are hovering in the
3 high-7 percent range, are also providing buyers with several opportunities.
Cash-heavy investors with long holding periods may want to consider
2
growing areas, including Katy and Fort Bend County, while redevelopment
04 05 06 07* 08** opportunities in close-in submarkets are expected to emerge this year, par-
ticularly west of the Downtown area.
Asking Rent Vacancy 2008 Market Outlook
$17 14%
2008 NRI Rank: 24, Up 2 Places. Cooling construction and healthy
$16
employment growth moved Houston up two places in the NRI.
13%
Vacancy Rate
◆ Employment Forecast: Houston employers will slow hiring again in

$15 12%
2008, though gains will remain well above the national average. After
adding 55,400 positions in 2007, payrolls are expected to expand 1.6
$14 11% percent this year with the creation of 41,000 jobs.
$13 10% ◆ Construction Forecast: Following several years of elevated construction,

04 05 06 07* 08**
deliveries will total 3.2 million square feet in 2008, down from 4.6
million square feet last year and 20 percent below the five-year average.
Sales Trends
Single-Tenant Multi-Tenant ◆ Vacancy Forecast: Despite slower construction, cooling retail sales will
$400
keep vacancy steady at 11.4 percent. In 2007, the marketwide vacancy
rate climbed 50 basis points.

$300
◆ Rent Forecast: Asking rents will advance 3.3 percent in 2008 to $16.41
$200 per square foot. Effective rents will gain 2.9 percent to $14.60 per square
foot as owners raise concessions to compete with new space.
$100
◆ Investment Forecast: New construction remains the greatest threat to
healthy retail fundamentals, even in urban assets. In addition,
$0 conversion from one property type to another is relatively easy, given
03 04 05 06 07*
the metro’s lack of zoning restrictions. Investors should target assets in
* Estimate ** Forecast established areas to mitigate the threat of new supply.
Market Forecast Employment: 1.6% ▲ Construction: 31% ▼ Vacancy: 0 bps ■ Asking Rents: 3.3% ▲

Up 1 Place 2008 Rank: 35 2007 Rank: 36 Indianapolis
Building Surge to Hamper Indianapolis

Retail Market in 2008
R
elatively steady demand drivers will be offset by robust supply growth Employment Growth vs. Retail Sales
in Indianapolis this year, leading to a short-term shift in fundamentals. Employment Retail Sales
The vacancy rate will push higher as new developments lure retailers 8%
away from existing space, especially in the North submarket, where much of
the construction is concentrated. Nevertheless, vacancy levels in the 6%
submarket should remain 350 basis points lower than the metro average, as
many retailers are still drawn to this affluent trade area. West of the city, new 4%
developments are coming online largely vacant. Brownsburg Station, for
example, was less than 50 percent leased when it was completed late last 2%
year. Elsewhere in the market, Indiana’s new “racinos,” or racetracks that
also have casinos, are affecting the northeast and southeast regions. Nearby
0%
racinos have generated more traffic on interstates 69 and 74, spurring 04 05 06 07* 08**
demand for assets located between Indianapolis and the communities of
Anderson and Shelbyville. In the city center, a few condo projects are still
Retail Completions
under way, which will increase population density and retailer demand.
4
Additionally, properties near the new Lucas Oil Stadium will receive

elevated foot traffic during major events.
3
Investment activity will ease in the Indianapolis market in 2008, as the
number of potential investors has been reduced by the credit crunch. Out-of- 2
state buyers will remain the most active investment group, attracted by
favorable cap rates that are currently in the low- to mid-7 percent range for
1
single-tenant assets and low-8 percent range for multi-tenant properties. With
obtaining financing a challenge, single-tenant assets with national-credit
0
tenants will attract cash-heavy buyers. On the multi-tenant side, investors 04 05 06 07* 08**
focusing on older properties will want to make sure that anchor tenants are
under lease at least until deliveries subside, which should begin in 2009.
Additionally, buyers targeting assets in the affluent North and Northwest Asking Rent and Vacancy Trends
Asking Rent Vacancy
submarkets should anticipate making capital commitments to assets in order
$16 18%
to compete with new developments.
$15 16%
2008 Market Outlook
Vacancy Rate
◆ 2008 NRI Rank: 35, Up 1 Place. Indianapolis moved up one place due to $14 14%
steady employment gains and modest rent growth.
$13 12%
◆ Employment Forecast: Payrolls are expected to expand 1.1 percent this
year with the addition of 10,000 positions. In 2007, 11,500 jobs were
created in the metro area. $12 10%
04 05 06 07* 08**
◆ Construction Forecast: Developers will boost retail stock 2.9 percent in
2008, as 2.5 million square feet is projected to come online. Construction Sales Trends
will be concentrated in the northern and western areas of the metro. Single-Tenant Multi-Tenant
$250
◆ Vacancy Forecast: Easing job growth and elevated construction will
push vacancy up 60 basis points to 12.2 percent this year. In 2007, $200
vacancy climbed 80 basis points.
◆ Rent Forecast: Asking rents are forecast to reach $15.41 per square foot $150
by year end, up 2.2 percent from last year, while effective rents will
advance 2 percent to $13.82 per square foot. $100
◆ Investment Forecast: Speculative investors with long holding periods

may want to consider assets near the proposed Interstate 69 extension $50
03 04 05 06 07*
between Evansville and Indianapolis. The new artery will likely
generate additional demand for housing and retail space. * Estimate ** Forecast

Jacksonville Down 1 Place 2008 Rank: 34 2007 Rank: 33
Port Expansion Fueling

Economic Growth In Jacksonville
W
Employment Growth vs. Retail Sales hile the long-term outlook for Jacksonville’s retail market remains
Employment Retail Sales positive, a slowing housing market, combined with moderate levels
12% of new supply to inventory, signals a transition in market funda-
mentals. Jacksonville will achieve healthy job growth this year, led by the
9% trade, transportation and utilities sector. In particular, expansion of the

metro’s port, JAXPORT, continues to drive local economic growth. This year,
6% Mitsui O.S.K. Lines will complete their new 130-acre container terminal at
the port, bringing thousands of additional jobs to the market. Although
3%
employers will add to payrolls at a healthy pace, concern over the slowing
residential market will weigh on consumer spending, decelerating retail
sales growth. On the supply side, completions will drop off considerably in
0%
04 05 06 07* 08** 2008 from the metro’s recent pace, but inventory is still forecast to expand by
more than 2 percent. As a result, deliveries are expected to outpace
absorption, causing a modest uptick in vacancy.
Retail Completions
8
Transaction velocity in Jacksonville may cool as investors adjust their
expectations and evaluate the effects of weakness in the housing market. Cap
6 rates currently average in the mid- to high-7 percent range, up nearly 50 basis
points over the past year, as more conservative lending practices placed
4 upward pressure on cap rates for deals closed in the latter half of 2007. One-
fourth of buyers within the market are foreign, attracted by Jacksonville’s
2 long-term growth potential stemming from the maturation of its transporta-
tion facilities. Buyers may want to consider opportunities in the
0 Southside/Baymeadows submarket; developers continue to focus on the area,
04 05 06 07* 08** as nearly 700 new apartment units are scheduled for completion by year end,
which should boost demand for area retail.
Asking Rent Vacancy 2008 Market Outlook
$17 10%
◆ 2008 NRI Rank: 34, Down 1 Place. Jacksonville slipped one place in the
$16 9%
ranking due to a vacancy uptick and only modest rent growth.
Vacancy Rate
◆ Employment Forecast: Local employers are expected to increase

$15 8%
payrolls 2 percent this year with the addition of 12,800 positions. In 2007,
14,600 jobs were created.
$14 7%
◆ Construction Forecast: Developers will deliver 1.4 million square feet of
$13 6% space in 2008, down significantly from the 3.1 million square feet that
04 05 06 07* 08**
came online last year.
Sales Trends ◆ Vacancy Forecast: Modest amounts of new inventory and a slowing
Single-Tenant Multi-Tenant economy will drive up vacancy 40 basis points to 7.7 percent this year.
$300
In 2007, vacancy rose 30 basis points.
$225 ◆ Rent Forecast: Increasing vacancy and cooling retailer demand will
slow rent growth in 2008. Asking rents are expected to gain 2 percent to
$150 $16.01 per square foot, while effective rents inch up 1.9 percent to $14.31
per square foot.
$75
◆ Investment Forecast: Demand for retail space will continue to build
along Interstate 95, south of J. Turner Butler Boulevard. More than
$0
500,000 square feet of office space is in planning, and 500 apartments are
03 04 05 06 07*
under way. These developments should increase foot traffic in the area,
* Estimate ** Forecast supporting future retailer demand.
Market Forecast Employment: 2% ▲ Construction: 55% ▼ Vacancy: 40 bps ▲ Asking Rents: 2% ▲

Down 1 Place 2008 Rank: 38 2007 Rank: 37 Kansas City
Out-of-State Buyers Remain Active in

Kansas City Despite Rising Vacancy
A
n abundance of construction in Kansas City is expected to temporarily Employment Growth vs. Retail Sales
soften retail fundamentals this year. In 2008, builders are forecast to Employment Retail Sales
make the second-largest addition to inventory in more than 10 years, 8%
pushing marketwide vacancy up and cooling near-term rent growth.
Development activity abounds downtown and in Johnson County, as 6%
builders are targeting areas with significant residential expansion. The long-
awaited Power & Light District near the new Sprint Center is scheduled for 4%
completion this spring, which may re-energize downtown Kansas City. In
the suburbs, phase one of Park Place, the first mixed-use development in 2%
Johnson County, will come online in the first quarter. The 1.2 million-square
foot project consists of ground-floor retail and office space, as well as 52
0%
luxury residential units. To the north, developers will remain active in Platte 04 05 06 07* 08**
and Clay counties this year, with Best Buy, Lowe’s and JC Penney all
expected to open new stores.
Retail Completions
8
Increased development this year may stimulate an accelerated level of

buyer activity. Cap rates, which currently average in the mid-7 percent
range, have trended downward over the past 12 months, though rates 6
remain attractive to investors. Private buying activity continues to be
influenced by out-of-state investors, who comprise nearly one-third of all 4
buyers, a trend that should continue, given the market’s affordable pricing.
Looking forward, opportunities exist in the southwestern section of the 2
metro. The pro-growth communities of Shawnee, Lenexa and Olathe are
attracting robust office and residential development, which is expected to 0
stimulate a vigorous retail market. 04 05 06 07* 08**
2008 Market Outlook Asking Rent and Vacancy Trends

Asking Rent Vacancy
$16 13%
◆ 2008 NRI Rank: 38, Down 1 Place. Below-average employment and
effective rent growth forecasts moved Kansas City down one spot in the
ranking this year. $15 12%
Vacancy Rate
◆ Employment Forecast: Employers will add 7,200 positions in 2008 for a $14 11%
0.7 percent increase. Last year, growth was slightly slower, as 6,800 jobs
were created. $13 10%
◆ Construction Forecast: Retail development will remain healthy this 9%

$12
year. Builders are expected to deliver 3.3 million square feet of space by 04 05 06 07* 08**
year end, up from 1.3 million square feet in 2007.
Sales Trends
◆ Vacancy Forecast: Elevated construction levels will push vacancy up
120 basis points this year to 12 percent; in 2007, vacancy fell 30 basis $300
points. Looking forward, a decline in construction beginning in 2009

should aid in marketwide vacancy improvements. $225
◆ Rent Forecast: Added competition from new space will slow rent $150
growth. Asking rents are expected to rise 0.9 percent to $14.15 per
square foot, while effective rents push up 0.6 percent to $12.32 per
$75
square foot.
◆ Investment Forecast: Despite short-term weakening of fundamentals, $0

03 04 05 06 07*
retail investors will remain active targeting an abundance of new
product within a market that is poised for stable economic growth. * Estimate ** Forecast

Las Vegas Up 6 Places 2008 Rank: 7 2007 Rank: 13
Growing Suburbs Driving Retail

Development in Las Vegas
R
Employment Growth vs. Retail Sales etail properties in Las Vegas, particularly along the Strip and near
Employment Retail Sales casinos, should benefit from a weak dollar, drawing international
16% travelers to the area this year. Despite a slight decline in construction,
metrowide vacancy is forecast to rise again in 2008. New retail trade areas
12% will continue to emerge in outlying suburbs near recently developed master-
planned communities and the metro’s improving roadways. One example is
8% last year’s completion of the Silverado Ranch Boulevard to the Interstate 15
interchange, which will generate greater traffic counts and spur further
4%
residential and retail construction in the Southwest submarket. Developers
have already responded to the infrastructure improvements, and 1.2 million
square feet is currently slated for delivery in the area this year. While overall
0%
04 05 06 07* 08** vacancy is forecast to trend higher, pockets of the Las Vegas market remain
underserved, particularly the Northwest submarket and Centennial Hills.
Retail developers have been unable to keep pace with the area’s rapid
Retail Completions
population growth, resulting in vacancy rates in the low-3 percent range,
8
down nearly 100 basis points from year end 2007.
6 Both out-of-state and institutional investors will continue to be drawn to

Las Vegas’ robust population growth and long-term economic viability. In
4 2007, cap rates for both single- and multi-tenant properties hit a five-year low,
but stricter lending requirements are expected to apply upward pressure on
2 cap rates in 2008. The average cap rate for all retail properties is projected to
average in the low-7 percent range, while quality single-tenant assets generally
0
change hands at slightly lower rates. Older strip centers along Boulder
04 05 06 07* 08** Highway leading into Henderson will offer value-add opportunities due to
ongoing revitalization efforts in the area. Investors focused on long-term price
Asking Rent and Vacancy Trends appreciation may want to look to established trade areas, such as the stable
Asking Rent Vacancy Southeast submarket, where vacancy is expected to remain below 6 percent.
$26 7%
2008 Market Outlook

$24 6%
Vacancy Rate
◆ 2008 NRI Rank: 7, Up 6 Places. Las Vegas climbed six places this year,
$22 5% cracking the top 10, due to strong retail sales per capita.
$20 4% ◆ Employment Forecast: Employment growth will accelerate to 1.6

percent in 2008 year with the addition of 15,000 jobs.
$18 3%
04 05 06 07* 08** ◆ Construction Forecast: Developers are projected to deliver 3.3 million
square feet of retail space this year, down from 3.5 million square feet in
2007. Builders are targeting the metro’s outlying suburbs, where
Sales Trends residential growth is most significant.
$400
◆ Vacancy Forecast: Vacancy is expected to rise 50 basis points in 2008 to
6.1 percent after a 140 basis point increase last year.

$300
◆ Rent Forecast: Asking rents are projected to climb 4.5 percent to $24.49
$200 per square foot, while effective rents advance 4.3 percent to $21.92 per
square foot by year end.
$100
◆ Investment Forecast: The 2.1 million-square foot third phase of the
World Market Center is scheduled for delivery this year. The furniture
$0 showroom project is expected to be a catalyst for the redevelopment of
03 04 05 06 07*
downtown Las Vegas and will benefit nearby retailers by increasing
* Estimate ** Forecast traffic counts.

Up 3 Places 2008 Rank: 9 2007 Rank: 12 Los Angeles
Healthy Leasing Activity Supporting

Retail Owners in Los Angeles
R
etail properties throughout Los Angeles County will record healthy Employment Growth vs. Retail Sales
performance in 2008, despite moderating economic expansion. Land Employment Retail Sales
constraints and elevated development costs will keep retail construc- 8%
tion below the market’s historical average, and projects scheduled to come
online this year have significant pre-leasing commitments already in place. 6%
For example, one of the metro’s major developments opening this spring, the
475,000-square foot Americana at Brand in Glendale, was almost completely 4%
pre-leased by the end of 2007. Strong tenant demand for available space is
driving healthy rent growth, although gains are expected to slow somewhat
2%
this year due to more modest consumer spending. With a lack of land
available for development, builders will look to expand existing locations,
0%
including the planned 550,000-square foot Village at Warner Center in the 04 05 06 07* 08**
San Fernando Valley, which will connect to the Westfield Topanga and
Promenade Center to create one of the largest retail complexes on the West
Retail Completions
Coast.
8

Investors will continue to find attractive options in the Los Angeles
retail market, although a more cautious lending environment could slow 6
transaction velocity. Cap rates for single-tenant properties are averaging in
the mid- to high-5 percent range, while multi-tenant assets are trading at an 4
average of 6.2 percent. It is not uncommon, however, for prime properties to
change hands at cap rates below 5 percent in some of the area’s most 2
attractive locations; cap rates for many lesser-quality assets have averaged
roughly 7 percent. Investors may find relative value in some of Los Angeles’ 0
well-located older strip centers, many of which offer upside potential due to 04 05 06 07* 08**
expiring leases and rents that are well below market rates.
$32 10%
◆ 2008 NRI Rank: 9, Up 3 Places. Strong rent growth and slowing construc-
tion resulted in a three-spot jump into the top 10 for Los Angeles. $30 9%
Vacancy Rate
◆ Employment Forecast: Local firms are expected to steadily increase
payrolls, adding 23,000 jobs in 2008. This 0.6 percent expansion will be $28 8%
similar to last year’s gain of 22,400 positions.
$26 7%
◆ Construction Forecast: Developers will bring 2.6 million square feet of
new retail space to the market this year. Construction is slowing,
$24 6%
however, as 3.4 million square feet came online in 2007, and the metro 04 05 06 07* 08**
has averaged 4 million square feet of deliveries annually since 2000.
◆ Vacancy Forecast: Moderating consumer spending growth will restrain Sales Trends
expansion by area retailers, and construction will outpace deliveries $500
modestly. As a result, vacancy is forecast to edge up 20 basis points to

7.3 percent this year.

$400
◆ Rent Forecast: Steady operating conditions will support continued rent
growth, albeit at a slightly reduced pace than last year. In 2008, asking $300
rents are expected to gain 4.7 percent to $30.88 per square foot, while
effective rents record a 4.6 percent advance to $28.48 per square foot. $200
◆ Investment Forecast: Residential and retail developments in downtown

Los Angeles are booming, a trend that is expected to drive continued $100
03 04 05 06 07*
sales activity, particularly among buyers who have mid- to long-term
investment strategies. * Estimate ** Forecast

Miami Up 4 Places 2008 Rank: 16 2007 Rank: 20
Miami Retail Market to Remain Strong,

Despite Cooling Housing Market
D
Employment Growth vs. Retail Sales espite the realignment of supply and demand fundamentals in the
Employment Retail Sales housing market, retail properties in Miami-Dade County are expected to
8% post solid operating results in 2008. Retailer demand is forecast to grow
only gradually in response to reduced residential retail spending, leading to a
6% modest rise in vacancy. Spending by international visitors, however, will take

up some of the slack, helping to support space demand, especially in areas like
4% Miami Beach and South Beach. Elsewhere, strip centers measuring less than
30,000 square feet likely will record the greatest decline in demand as
2%
expansion by local merchants slows and fewer new retailers emerge.
Subsequently, the vacancy rate in small strip centers will rise from 2.5 percent
at year-end 2007 into the still-tight mid-3 percent range this year. Vacancy is
0%
04 05 06 07* 08** expected to increase to varying degrees in other segments of the market, but
overall, the uptick will not be so great as to significantly undermine rent
growth. Still, owners and investors should expect rents to climb an average of
Retail Completions
3.5 percent this year, compared with a nearly 5 percent jump in 2007.
4
In the investment arena, sales of multi-tenant properties intensified last

3 year and will continue to draw keen interest in 2008 due to consistently
strong fundamentals. Properties in densely populated and established trade
2 areas like Hialeah and North Miami will attract the strongest attention. Cap
rates on such assets could dip to the low-6 percent range as a result of below-
1 market rents, providing near-term value-creation opportunities by simply
lifting rents. Multi-tenant assets in the southern portion of county traded
0
more frequently last year, and a greater number should change hands in 2008
04 05 06 07* 08** as buyers seek to establish positions in the path of population growth. Cap
rates in the area may trend higher than the average for the entire market, as
Asking Rent and Vacancy Trends lenders are less willing to underwrite deals based on anticipated growth.
Asking Rent Vacancy
◆ 2008 NRI Rank: 16, Up 4 Places. Miami moved up four places in this
$24 6%
Vacancy Rate
year’s NRI due to low overall vacancy and strong rent growth.
$22 5% ◆ Employment Forecast: Local employers are projected to add 8,000
positions this year, a 0.7 percent gain. In 2007, 13,000 jobs were created.
$20 4%
◆ Construction Forecast: Builders completed 1.9 million square feet of
$18 3% retail space last year, but new supply will slow to 1.6 million square feet
04 05 06 07* 08** in 2008, representing a 1.8 percent increase in retail stock. The largest
project scheduled to come online is the 325,000-square foot London
Sales Trends Square in Kendall; the property will be shadow-anchored by a Costco.
$400 ◆ Vacancy Forecast: A softer housing market will affect retail space
demand, leading to a 40 basis point rise in vacancy to 5.7 percent.

$300
◆ Rent Forecast: Asking rents are forecast to increase 3.5 percent to $25.45
$200 per square foot, while effective rents are expected to tack on 3.4 percent
to end 2008 at $23.01 per square foot.
$100
◆ Investment Forecast: Slower housing sales have failed to generate the
anticipated amount of traffic for some restaurants, which may lead to a
$0 greater number of closures this year. Top-performing chains with strong
03 04 05 06 07*
franchisees, however, will present viable opportunities for dedicated
* Estimate ** Forecast restaurant investors with a low tolerance for risk.

Down 3 Places 2008 Rank: 42 2007 Rank: 39 Milwaukee
Demand for Retail Space in Third Ward

Spilling into Adjacent Neighborhoods
I
ncreased construction activity, coupled with modest economic growth, is Employment Growth vs. Retail Sales
expected to create a mixed retail climate in Milwaukee this year. Employers Employment Retail Sales
will eliminate a handful of jobs as the local economy transitions away from 6%
the heavy manufacturing base once prevalent in the area. Additionally, the
local housing market is slowing, especially for condos, as some developments 4%
are being postponed or canceled. Groundbreaking for The Terraces at River
Bluff project, for example, which originally called for 160 condo units, has 2%
been delayed as a result of demand and financing concerns. Plans for new
retail development to support the densely populated downtown area are 0%
proceeding and spilling out of the popular Third Ward. In the Park East area,
the city has been selective on which ventures will receive incentives,
-2%
potentially reducing the scale of some projects due to continued difficulty 04 05 06 07* 08**
obtaining construction financing. Manpower’s new headquarters and the
redevelopment of the Pabst Brewing site, however, are attracting retailers and
Retail Completions
alleviating some feasibility concerns of investors in the area.
4

Investment activity in Milwaukee’s single- and multi-tenant properties
will vary this year. In the single-tenant market, where cap rates are in the low- 3
7 percent range, capital coming in from the coasts is dwindling, slowing deal
flow and leaving regional and local investors as the largest buyers. Investors 2
are expected to focus on the metro’s premium single-tenant properties. More
stringent lending standards could reduce investor competition, particularly 1
in the lower tiers, creating opportunities for buyers seeking bargains. For
multi-tenant assets, where average initial yields are in the high-7 percent 0
range, velocity is expected slow modestly as an active pool of local buyers 04 05 06 07* 08**
expands their portfolios. Investors may want to target assets in Racine
County to take advantage of rapid household growth, which has led to Asking Rent and Vacancy Trends
significant price appreciation in the last year. Asking Rent Vacancy
$17 12%
2008 Market Outlook

$16 11%
Vacancy Rate
◆ 2008 NRI Rank: 42, Down 3 Places. Milwaukee fell three spots in the
index, due to forecasts for a modest decline in employment this year.
$15 10%
◆ Employment Forecast: Local employers are expected to shed 600

positions this year as gains in the educational and health services $14 9%
segment are offset by losses in the manufacturing, and professional and
business services sectors. In 2007, 6,600 jobs were created. $13 8%
04 05 06 07* 08**
◆ Construction Forecast: Builders will bring 1.3 million square feet of
retail space online in 2008, expanding stock by less than 2 percent. Last Sales Trends
year, 1.1 million square feet of space was added to inventory. Single-Tenant Multi-Tenant
$250
◆ Vacancy Forecast: Slower job growth and heightened construction

activity will push vacancy up 50 basis points to 10.4 percent by year end. $200
The vacancy rate climbed 30 basis points in 2007.
$150
◆ Rent Forecast: Asking rents will reach $15.60 per square foot this year,
while effective rents advance to $13.93 per square foot, gains of 2.4
$100
percent and 2.1 percent, respectively.
◆ Investment Forecast: The Fifth Ward continues to benefit from space $50
03 04 05 06 07*
constraints in the adjacent Third Ward. This will provide potential
upside for owners in the area as rent growth accelerates this year. * Estimate ** Forecast
Market Forecast Employment: 0.1% ▼ Construction: 18% ▲ Vacancy: 50 bps ▲ Asking Rents: 2.4% ▲

Minneapolis-St. Paul Up 2 Places 2008 Rank: 28 2007 Rank: 30
Rents Rising in the Twin Cities

Despite Slightly Higher Vacancy Levels
T
Employment Growth vs. Retail Sales he supply-demand balance will begin to stabilize in the Minneapolis-
Employment Retail Sales St. Paul area this year, though new construction will outpace
8% absorption modestly. Much of the new space coming online is big-box
development in suburban areas, which will cause vacancy to inch higher this
6% year. As such, conditions will remain tight in suburban areas, and owners
will enjoy healthy rent gains. Around the metro area, robust tenant demand
4% for new space in the East Hennepin County/Minneapolis submarket will be
met with limited construction. Several condo projects in the area that
2%
included ground-level retail have been canceled in the wake of a softening
housing market. In the Anoka/Southeast Sherburne County submarket,
retailers are following the significant housing construction over the past few
0%
04 05 06 07* 08** years, particularly in Blaine. The planned SportsTown USA, for example,
will double in size to keep pace with demand. Elsewhere, owners in the
Interstate 94 corridor in the West Hennepin County submarket should get a
Retail Completions
revenue boost from vacancy improvements as retail space delivered in 2007
8
is absorbed due to demand generated by the future Northstar Commuter
Rail line.
6
Investment activity for single-tenant assets, which are trading at cap
4 rates in the low-7 percent range, is expected to slow again this year as tighter
lending standards reduce the buyer pool. Cash-heavy investors, however,
2 will continue to target the market due to its favorable prices and healthy
long-term economic outlook. Multi-tenant opportunities abound in the
0
metro, with cap rates in the high-7 percent range. In the city center, buyers
04 05 06 07* 08** looking to reposition properties to cater to the new affluent residents living
in condos will seek assets that are currently priced below replacement costs.
Asking Rent and Vacancy Trends In the suburbs, developers are listing newly completed projects that will
Asking Rent Vacancy likely garner interest from major buyers with long holding periods seeking
$19 10% the metro’s top-tier properties.
$18 9%
2008 Market Outlook
Vacancy Rate
◆ 2008 NRI Rank: 28, Up 2 Places. Improving household growth pushed

$17 8% Minneapolis up two spots in the NRI.
$16 7% ◆ Employment Forecast: Employment growth in Minneapolis-St. Paul

will remain healthy this year, as employers are forecast to expand
$15 6% payrolls 0.5 percent with the addition of 8,300 positions. In 2007, 9,000
04 05 06 07* 08** jobs were created.
◆ Construction Forecast: Construction activity will slow to 2.2 million

Sales Trends
square feet of retail space in 2008, after 3.4 million square feet came
$250 online last year.
◆ Vacancy Forecast: The metrowide vacancy rate will inch up 30 basis

$200
points by year end to 8.6 percent. In 2007, high levels of construction
fueled a 60 basis point increase in vacancy.
$150
◆ Rent Forecast: Asking rents are expected to climb 3 percent this year to
$100 $18.32 per square foot, while effective rents advance 2.8 percent to
$16.40 per square foot.
$50 ◆ Investment Forecast: Investors may want to target assets in Scott and
03 04 05 06 07*
Carver counties, which will receive the bulk of residential construction
* Estimate ** Forecast over the next decade, potentially fueling retailer demand.

Down 4 Places 2008 Rank: 39 2007 Rank: 35 New Haven
New Haven’s Older Retail Properties

Commanding Investor Attention
A
modest increase in retail space demand, along with a decline in Employment Growth vs. Retail Sales
completions, will support a slight vacancy decrease in Fairfield and Employment Retail Sales
New Haven counties this year. Vacancy will register in the high-4 8%
percent to low-5 percent range in Fairfield County’s most affluent
communities. Shopping centers and strip centers in towns such as Stamford 6%
and Greenwich likely will post very low vacancy, as high incomes will
sustain a healthy level of consumer spending. Vacancy in the county’s less 4%
affluent communities will trend higher, as will the vacancy rate for older
properties in New Haven County, which is forecast to tick up to 9.2 percent 2%
this year. In 2007, vacancy in the county’s strip centers built before 1988
inched up to approximately 10 percent. Demand for space at these properties
0%
will continue to moderate as older, marginal tenants depart and some 04 05 06 07* 08**
owners fail to upgrade spaces to attract new retailers.
Retail Completions
While the performance of older strip centers will lag the overall market
2.0
in the short term, such properties are increasingly emerging as solid value-

add opportunities for forward-looking investors. Obsolete Class B/C assets
in Class A locations, for example, can be razed and redeveloped into the type 1.5
of new spaces that national retailers require. Other Class B/C strip centers
can be upgraded and re-tenanted to provide investors with considerable 1.0
upside in appreciation and rent growth. Currently, multi-tenant properties
in the lower tiers are pricing at cap rates in the 9 percent range based on 0.5
current income, although initial yields for assets being marketed for redevel-
opment can vary considerably. Additionally, few Class A centers in the 0.0
market are trading, but large investors likely will accept cap rates in the mid- 04 05 06 07* 08**
6 percent range for properties serving affluent trade areas.
$24 10%
◆ 2008 NRI Rank: 39, Down 4 Places. Below-average employment and

household growth bumped New Haven down four spots in the index. $22 9%
Vacancy Rate
◆ Employment Forecast: Total employment in New Haven and Fairfield
counties is expected to rise 0.6 percent this year with the addition of $20 8%
5,300 jobs, compared with 4,900 new positions in 2007.
$18 7%
◆ Construction Forecast: Approximately 500,000 square feet of retail
space will be completed in 2008, consisting primarily of small strip 6%
$16
centers and some pad sites at larger properties. Last year, 700,000 square 04 05 06 07* 08**
feet was delivered.
◆ Vacancy Forecast: Marketwide vacancy is projected to decline 20 basis Sales Trends

points this year to 7.6 percent. Vacancy is expected to rise slightly to the Single-Tenant Multi-Tenant
$500
mid-5 percent range in Fairfield County due to low tenant demand in
less affluent areas with older properties, such as Bridgeport. $375
◆ Rent Forecast: Asking rents are forecast to increase 2.4 percent to $22.10
per square foot by year end, while effective rents advance 2.5 percent to $250
$125
◆ Investment Forecast: Single-tenant assets, such as coffee shops and fast-
food restaurants, in locations en route to train stations and major
$0
employment centers including Stamford, will sustain investor interest. 03 04 05 06 07*
Cap rates for these properties will creep up during the year to the mid-
to high-6 percent range as questions concerning credit quality linger. * Estimate ** Forecast

Statistical
Vacancy Asking Rent Completions
(Year-End, %)1 ($/Sq. Ft., NNN)1 (000s of Sq. Ft.)
MSA Name 05 06 07* 08** 05 06 07* 08** 05 06 07* 08**
Atlanta 8.4 8.0 8.2 8.0 16.68 17.07 17.40 17.77 5,890 6,200 5,100 4,900
Austin 7.6 8.0 11.2 11.4 18.44 19.09 19.88 20.51 3,566 3,171 4,874 2,000
Boston 5.0 5.3 5.1 5.3 20.30 20.90 21.57 22.28 1,947 1,800 1,900 2,100
Charlotte 9.2 8.4 8.5 8.5 16.69 17.35 17.74 18.15 2,100 2,600 2,300 1,700
Chicago 7.4 6.8 7.9 8.2 18.54 19.00 19.54 20.13 3,200 6,000 9,500 5,100
Cincinnati 9.6 10.6 10.3 10.4 14.16 14.36 14.76 15.09 1,100 1,600 1,900 1,600
Cleveland 7.3 8.0 8.3 8.7 15.41 15.43 15.47 15.50 1,040 1,770 2,100 1,600
Columbus 11.1 11.3 11.2 11.6 12.27 12.30 12.53 12.71 1,500 1,700 1,100 1,200
Dallas/Fort Worth 13.3 13.1 14.2 14.9 14.81 15.18 15.54 15.90 8,780 7,800 4,000 5,100
Denver 7.1 7.3 7.7 7.4 16.22 16.42 16.91 17.36 4,200 3,290 3,600 2,500
Detroit 9.3 9.7 9.7 10.1 16.94 17.24 17.35 17.70 2,200 4,149 2,662 1,400
Fort Lauderdale 5.1 4.5 5.8 6.4 17.71 18.85 19.42 19.90 1,334 980 1,900 1,000
Houston 11.2 10.9 11.4 11.4 15.16 15.44 15.89 16.41 3,470 4,125 4,620 3,200
Indianapolis 14.0 10.8 11.6 12.2 14.25 14.74 15.08 15.41 2,240 1,692 2,170 2,500
Jacksonville 6.2 7.0 7.3 7.7 14.38 15.38 15.70 16.01 2,240 2,800 3,100 1,400
Kansas City 10.3 11.1 10.8 12.0 13.66 13.94 14.02 14.15 2,065 3,650 1,300 3,300
Las Vegas 4.8 4.2 5.6 6.1 21.01 22.28 23.44 24.49 1,460 2,300 3,500 3,300
Los Angeles 8.1 7.1 7.1 7.3 26.48 27.95 29.49 30.88 4,420 3,100 3,400 2,600
Miami 3.9 4.7 5.3 5.7 22.00 23.43 24.59 25.45 1,200 2,000 1,900 1,600
Milwaukee 9.3 9.6 9.9 10.4 14.68 14.95 15.24 15.60 1,350 1,545 1,100 1,300
Minneapolis-St. Paul 6.8 7.7 8.3 8.6 16.65 17.35 17.78 18.32 4,095 4,500 3,400 2,200
New Haven 8.1 7.7 7.8 7.6 20.49 21.23 21.57 22.10 550 830 700 500
New York City 4.3 4.5 5.1 5.4 61.15 64.21 68.19 71.53 220 550 1,200 1,300
Northern New Jersey 4.7 4.0 4.5 4.8 25.90 27.02 27.59 28.28 1,100 1,600 800 2,500
Oakland 2.9 1.8 1.8 2.0 26.63 28.16 28.99 29.92 1,400 900 850 900
Orange County 4.1 4.1 3.9 4.1 28.20 30.07 31.42 32.66 915 1,790 2,300 1,100
Orlando 8.9 8.5 9.0 9.4 17.42 18.30 18.85 19.51 2,090 1,300 3,500 2,800
Philadelphia 7.7 7.4 6.8 6.4 18.79 19.45 19.92 20.41 3,000 2,200 2,000 1,600
Phoenix 4.5 5.5 7.2 7.7 17.88 18.60 19.25 19.89 5,880 9,350 8,400 7,500
Portland 6.2 5.3 5.5 5.8 18.50 19.02 19.60 20.31 785 1,189 1,500 1,250
Riverside-San Bernardino 9.3 10.0 11.9 12.8 20.04 21.63 22.68 23.69 4,200 6,100 5,200 6,800
Sacramento 6.5 7.5 8.6 8.2 21.96 23.37 24.09 25.04 808 1,500 1,900 1,900
Salt Lake City 7.9 8.0 7.8 7.7 15.77 16.15 16.33 16.60 1,500 1,600 2,100 1,100
San Antonio 11.2 11.0 14.3 15.7 13.94 14.32 14.88 15.36 2,680 3,175 4,000 2,700
San Diego 2.8 2.6 3.0 3.2 25.67 27.31 29.24 31.14 1,050 1,300 1,800 1,400
San Francisco 5.8 4.7 3.7 3.1 32.24 32.35 33.58 34.76 400 1,000 550 100
San Jose 3.8 3.2 3.1 3.0 28.99 30.26 31.54 32.94 590 1,120 950 250
Seattle 8.0 7.1 7.2 7.8 21.57 22.45 23.46 24.32 1,200 840 1,200 2,000
St. Louis 8.5 9.0 9.8 10.2 14.63 14.97 15.09 15.40 1,100 2,719 2,642 1,900
Tampa 7.2 6.6 7.1 7.8 14.49 15.13 15.68 16.15 1,500 2,600 3,000 3,300
Tucson 9.4 9.1 9.9 10.4 16.17 16.72 17.27 17.80 1,020 700 320 2,000
Washington, D.C. 4.7 4.1 4.4 4.8 25.24 26.54 27.36 28.18 3,300 3,400 3,000 4,000
West Palm Beach 6.1 5.8 6.6 6.9 20.50 22.12 22.87 23.56 1,300 2,300 1,000 750
p a g e 32 * Estimate ** Forecast 2008 Annual Report

Summary
Household Employment Unemployment
Income ($)1 Growth (%)1 Rate (%)1
05 06 07* 08** 05 06 07* 08** 05 06 07* 08**
58,244 62,610 66,484 68,871 3.1 2.2 2.3 1.7 5.1 4.5 4.5 4.7 Atlanta
47,164 48,612 54,001 55,666 3.9 4.8 2.9 2.4 4.4 4.1 3.7 3.6 Austin
70,590 75,192 67,630 69,035 0.6 0.8 1.1 1.1 4.5 4.5 4.4 4.3 Boston
52,681 54,744 48,889 49,649 2.6 3.8 2.0 1.8 5.1 4.7 5.0 5.2 Charlotte
53,256 54,022 55,611 57,721 1.1 1.3 1.0 0.7 5.2 4.2 5.4 5.8 Chicago
50,656 52,659 54,725 55,557 1.1 1.0 0.5 0.4 5.4 5.1 5.3 5.1 Cincinnati
47,362 49,413 50,471 51,710 -0.3 0.3 0.4 0.1 5.7 5.1 6.3 6.2 Cleveland
50,983 52,980 53,654 54,817 0.5 0.5 0.5 0.4 5.3 4.7 5.0 4.9 Columbus
49,799 51,291 55,383 56,930 2.9 3.3 2.1 1.9 5.2 4.9 4.4 4.3 Dallas/Fort Worth
54,502 56,050 61,806 63,729 2.2 1.7 1.7 1.1 5.1 4.7 4.0 4.1 Denver
49,741 53,033 54,797 56,043 -0.8 -2.7 -1.5 0.1 7.3 7.0 8.1 8.0 Detroit
49,762 53,358 55,323 57,633 4.4 2.7 0.9 1.1 3.3 3.0 3.8 3.9 Fort Lauderdale
48,272 49,805 52,166 53,740 3.3 4.3 2.2 1.6 5.6 5.1 4.4 4.3 Houston
49,025 50,459 55,103 56,287 0.4 1.7 1.3 1.1 4.8 4.6 4.3 4.4 Indianapolis
52,028 54,859 54,093 56,323 3.9 2.4 2.3 2.0 4.0 3.3 4.0 4.0 Jacksonville
49,106 51,507 54,821 56,319 0.9 0.7 0.7 0.7 5.6 4.9 5.3 5.2 Kansas City
51,965 53,833 57,010 57,314 7.0 3.7 0.4 1.6 3.9 4.0 5.2 5.2 Las Vegas
50,163 53,107 56,048 57,547 0.8 0.9 0.5 0.6 5.3 4.8 5.3 5.2 Los Angeles
39,973 44,671 45,444 46,444 2.1 1.5 1.2 0.7 4.1 3.5 3.9 4.1 Miami
44,500 45,318 56,775 58,141 -0.3 1.0 0.8 -0.1 4.9 5.1 5.6 5.6 Milwaukee
62,047 62,303 65,593 66,931 1.0 0.9 0.5 0.5 3.8 3.7 4.6 4.5 Minneapolis-St. Paul
64,183 72,988 66,179 67,750 0.1 1.2 0.6 0.6 4.6 4.1 5.2 5.2 New Haven
47,509 50,732 54,713 56,528 1.3 1.7 1.0 0.5 5.4 4.7 4.8 5.0 New York City
71,577 77,219 81,540 84,560 -0.2 0.6 0.6 0.4 4.5 4.7 4.9 5.0 Northern New Jersey
70,438 74,424 76,018 77,954 1.6 1.4 0.5 0.5 4.9 4.4 5.1 4.9 Oakland
72,531 76,833 75,305 77,514 1.8 1.3 0.1 0.7 3.7 3.4 4.4 4.3 Orange County
48,643 52,803 53,291 54,545 5.4 3.4 2.0 1.7 3.2 3.1 4.1 4.2 Orlando
60,691 63,234 64,905 66,254 0.8 1.2 1.0 0.6 4.8 4.6 4.4 4.5 Philadelphia
54,525 57,288 56,113 56,909 5.9 5.4 1.5 1.3 4.1 3.5 3.1 3.0 Phoenix
50,323 53,132 56,477 57,847 2.7 2.7 1.1 1.2 5.9 5.2 5.1 5.0 Portland
49,895 52,685 58,242 60,006 4.9 2.6 3.1 2.3 5.0 4.6 6.3 6.0 Riverside-San Bernardino
54,797 58,187 62,382 64,332 3.0 1.5 1.0 0.9 4.7 4.5 5.6 5.3 Sacramento
59,800 64,255 59,489 60,941 4.8 4.5 3.8 3.1 4.6 3.2 2.8 2.8 Salt Lake City
41,809 43,123 45,073 46,277 3.2 3.3 2.0 2.3 4.9 4.7 4.2 4.1 San Antonio
59,565 63,125 67,310 69,167 1.5 1.4 0.9 0.9 4.2 3.9 5.0 4.8 San Diego
72,646 76,970 77,594 79,438 0.9 2.2 1.3 1.0 4.5 4.0 4.4 4.2 San Francisco
82,932 87,470 86,466 88,390 0.6 1.6 1.2 0.7 5.5 4.7 5.2 5.0 San Jose
57,175 59,365 68,642 70,154 3.8 3.1 2.6 1.9 5.1 4.5 4.2 4.2 Seattle
47,543 47,781 48,631 50,037 0.9 1.1 1.3 0.7 5.2 4.9 5.4 5.3 St. Louis
45,489 46,740 47,725 49,194 3.7 2.3 1.0 1.1 3.5 3.3 4.4 4.6 Tampa
44,645 46,934 46,650 48,143 2.5 3.7 1.9 1.7 4.4 4.1 3.6 3.4 Tucson
75,930 81,212 82,998 84,614 2.0 2.3 1.4 0.8 3.4 3.0 3.1 3.2 Washington, D.C.
55,089 57,148 58,917 60,498 4.0 3.6 1.4 1.3 4.9 3.6 4.4 4.6 West Palm Beach
2008 Annual Report 1 See Statistical Summary Note on page 55 p a g e 33

New York City Down 3 Places 2008 Rank: 4 2007 Rank: 1
Recent Residential Focus, Large Projects

Reshaping City’s Retail Landscape
T
Employment Growth vs. Retail Sales he retail property sector in New York City will remain vigorous in 2008,
Employment Retail Sales as existing properties continue to record respectable vacancy and rent
8% growth, and new retail trade areas rapidly emerge. One of the best
examples of current trends in the city is Lower Manhattan. New residential
6% developments are enlarging the population and altering the profile of

shoppers. The population south of Chambers Street, for example, has
4% increased 30 percent since 2001, and the median annual household income
has soared to $165,000, nearly three times as great as the median for the entire
2%
borough. Consequently, a different set of retailers is rapidly moving into the
area, helping to double asking rents over the past few years to more than $100
per square foot. In the other boroughs, the rezoning of Jamaica and Willets
0%
04 05 06 07* 08** Point in Queens will bring in new retailers, while the scheduled completion
of the Gateway Center in 2009 is expected to accelerate a revival of the Bronx.
Retail Completions The transformation of the city’s most populous borough, Brooklyn,
2.0 continues. New residential development in areas such as Downtown, Park
Slope and Williamsburg are intensifying demand for retail space. In many
1.5 neighborhoods across the borough, existing tenants are departing, and new
national tenants are coming in, typically paying higher rents than those on
1.0 expiring leases. The huge Atlantic Yards mixed-use project will bring 247,000
square feet of retail space to the borough, while greater cruise ship volume
and hotel development will also improve prospects for retailers. The recent
0.5
rezoning of neighborhoods, such as Dyker Heights, Fort Hamilton and
Bedford-Stuyvesant, will stimulate retail development and spur greater
0.0
04 05 06 07* 08** investor interest in other neighborhoods. Additionally, existing storefronts
with residential components will remain in demand among investors, as
these assets often provide stable returns and steady value appreciation.
Asking Rent Vacancy
$80
2008 Market Outlook
7%
◆ 2008 NRI Rank: 4, Down 3 Places. Strong fundamentals kept New York
$70 6% near the top of the NRI this year despite rising construction.
Vacancy Rate
◆ Employment Forecast: Citywide, employers are forecast to create 22,000

$60 5%
jobs in 2008, a 0.5 percent gain but a decline from the 40,000 new positions
added last year. Manhattan will add approximately 16,000 positions this
$50 4% year, while total employment in Brooklyn will expand by 2,100 workers.
$40 3% ◆ Construction Forecast: Nearly 1.1 million square feet of space is slated
04 05 06 07* 08** for delivery in Manhattan and Brooklyn in 2008, accounting for most of
the 1.3 million square feet due for the entire city. Last year, 1.2 million
Sales Trends square feet of new retail space came online citywide.
$600 ◆ Vacancy Forecast: In 2008, tenant turnover and slightly longer times to
re-lease space will underpin a 30 basis point rise in the vacancy rate to
$450 5.4 percent in the entire city. The rate in Manhattan is expected to
increase 30 basis points to 4.2 percent, while a 30 basis point uptick to 5.9
percent is forecast in the quickly transforming Brooklyn market.
$300
◆ Rent Forecast: An extreme range of rents can be found in each borough,
$150 but the average estimated rent in the entire city is expected to climb 4.9
percent to $71.53 per square foot this year.
$0 ◆ Investment Forecast: Retail properties in areas with significant
03 04 05 06 07*
pedestrian traffic will continue to be in high demand, as rents are
* Estimate ** Forecast projected to continue rising over the near term in the five boroughs.

Down 3 Places 2008 Rank: 22 2007 Rank: 19 Northern New Jersey
Buyers Continue to Outnumber Sellers in

Northern New Jersey Market
T
he Northern New Jersey retail property market is expected to post Employment Growth vs. Retail Sales
another year of solid results in 2008, although demand drivers will ease Employment Retail Sales
somewhat in conjunction with a reduced rate of consumer spending. 6%
Overall, the vacancy rate is forecast to rise slightly to a still-tight 4.8 percent
as retailers curtail expansion plans. Vacancy will be modestly higher, 4%
however, in Class B/C properties in need of repositioning, as well as in older
trade areas, such as the southern section of Route 17 in Bergen County. With 2%
retailer demand projected to soften and a few more vacant spaces on the
market, rent growth in Northern New Jersey will slow from the aggressive 0%
rates recorded as recently as early 2007. Waterfront communities in Hudson
County, meanwhile, may record slightly greater rent growth in the near term.
-2%
National retailers are likely to intensify demand for space in county towns 04 05 06 07* 08**
such as Jersey City, where new housing is transforming the consumer profile.
Retail Completions
In the investment market, cap rates for grocery-anchored centers are
4
expected to settle in the low- to mid-6 percent range this year, while

unanchored strip centers will price approximately 100 basis points higher.
Buyers still outnumber sellers in the market, which will sustain upward 3
pressure on prices, but sellers should expect a slower rate of price growth in
the quarters ahead due to more stringent acquisition financing. Properties in 2
supply-constrained areas with strong demographics, such as Bergen County,
will remain in demand, while value-add opportunities in other counties will 1
also draw interest. Indeed, much of the market’s older retail property stock
requires upgrading; such assets will provide buyers with long-term horizons 0
an opportunity to realize significant appreciation through re-tenanting. A 04 05 06 07* 08**
notable example of this approach is the Mall at Mill Creek in Secaucus, where
local merchants are being replaced by big-box retailers. Asking Rent and Vacancy Trends
Asking Rent Vacancy
2008 Market Outlook $30 7%
◆ 2008 NRI Rank: 22, Down 3 Places. A modest vacancy uptick and $28 6%
Vacancy Rate
slower pace of job growth pushed Northern New Jersey down three
spots in the NRI.
$26 5%
◆ Employment Forecast: Employers in the Northern New Jersey region
are forecast to add 8,100 jobs this year, a 0.4 percent gain. In 2007, $24 4%
employers filled 10,600 positions.
$22 3%
◆ Construction Forecast: Developers are expected to complete 2.5 million 04 05 06 07* 08**
square feet of space in 2008, compared with 800,000 square feet last year.
Approximately 2.2 million square feet of this year’s completions is
Sales Trends
attributable to the Meadowlands Xanadu project.
$300
◆ Vacancy Forecast: Led by a reduction in demand for space at older Class
B/C properties, the marketwide vacancy rate will increase 30 basis

$250
points this year to 4.8 percent.
◆ Rent Forecast: Asking and effective rents are both forecast to climb 2.5 $200
percent in 2008 to $28.28 per square foot and $26.42 per square foot,
respectively. Last year, asking and effective rents each rose 2.1 percent. $150
◆ Investment Forecast: The market’s high population density and heavily

traveled roadways will sustain demand from national retailers, who will $100
03 04 05 06 07*
look to secure pads or development sites along routes leading to
Manhattan and employment centers on the waterfront. * Estimate ** Forecast

Oakland Down 2 Places 2008 Rank: 6 2007 Rank: 4
Tight Vacancy Continues to Drive

Investors to Oakland Retail Properties
W
Employment Growth vs. Retail Sales hile the cooling housing market is weighing on retail sales growth,
Employment Retail Sales Oakland’s outlook remains bright, highlighted by the arrival of new
8% merchants and ongoing redevelopment efforts. Furthermore,
expansion in the higher-paying professional and business services sector,
6% which is expected to add nearly 2,000 jobs this year, will reinforce another
period of steady employment growth. Although concerns over the effects of
4% the housing market slowdown on the economy still linger, consumer
confidence remains steady. Retail sales will expand modestly, and consumer
2%
demand is attracting new stores to the market. Trader Joe’s and Whole
Foods, for example, entered Oakland in late 2007, while plans for the rede-
velopment of the Broadway corridor may include the city’s first Target.
0%
04 05 06 07* 08** Builders are subsequently expected to increase completions this year,
although additions will remain in line with the five-year average.
Nevertheless, vacancy will stay among the tightest in the country, while
Retail Completions
rents will expand at a healthy pace.
4
Investor demand for Oakland retail assets remains strong, as transaction

3 velocity has continued at a consistent, healthy pace for the past three years.
Cap rates have begun to rise over the last year and are currently averaging
2 in the low-6 percent range. Conservative underwriting standards could
generate further subtle increases in cap rates in 2008 as well. Investors with
1 long-term objectives may want to consider value-add opportunities near
redevelopment projects, such as the Jack London Square Market. The first
0
phase of the 1.8 million-square foot mixed-use development is currently
04 05 06 07* 08** under way. The project will add approximately 200,000 square feet of retail
space to the market and is expected to spur demand for nearby properties.
Asking Rent Vacancy
$32
2008 Market Outlook
8%
◆ 2008 NRI Rank: 6, Down 2 Places. Despite a rise in construction,

$30 6% Oakland is one of the nation’s tightest markets and stayed in the top 10.
Vacancy Rate
$28 4% ◆ Employment Forecast: Oakland employers will expand payrolls

steadily this year, adding 5,300 positions for a 0.5 percent increase. In
$26 2% 2007, growth was more modest, as 4,900 jobs were created.
$24 0% ◆ Construction Forecast: Retail development is expected to accelerate

04 05 06 07* 08** slightly, as completions will total 900,000 square feet. Last year, 850,000
square feet of new space was delivered to the market.
Sales Trends
◆ Vacancy Forecast: Moderate additions to supply, coupled with steady
$500 retail demand, will keep vacancy within its current range. By year end,
vacancy is expected to rise just 20 basis points to 2 percent.

$400
◆ Rent Forecast: Stable demand and tight occupancy levels will underpin
$300 rent growth this year. Asking rents are expected to advance 3.2 percent
to $29.92 per square foot, while effective rents increase 2.7 percent to
$200
◆ Investment Forecast: Development of areas such as the Broadway

$100 corridor and Jack London Square are expected to reinvigorate local retail
03 04 05 06 07*
demand, underpinning capital appreciation and supporting a positive
* Estimate ** Forecast long-term outlook for retail opportunities.

Down 1 Place 2008 Rank: 8 2007 Rank: 7 Orange County
Strength in Retail to Overcome Slow

Economy, Housing Downturn
O
range County’s retail market is expected to record healthy Employment Growth vs. Retail Sales
performance this year, although the region’s cooling retail sales growth Employment Retail Sales
will result in a minor uptick in vacancy. The local employment market 12%
is forecast to begin recovering from the collapse of the subprime lending
market, which led to mass layoffs in 2007. The professional and business 9%
services sector, which was hardest hit by payroll reductions last year, is
anticipated to post modest gains in 2008 before returning to more robust 6%
growth next year. While Orange County’s demand drivers are increasing
modestly, the threat of overbuilding remains minimal, as retail deliveries will 3%
slow this year due to land constraints. Nearly all of the metro’s new construc-
tion is located in core growth areas, such as Irvine, or is a component of
0%
master-planned communities in the South County submarket. On the whole, 04 05 06 07* 08**
these projects have strong leasing commitments already in place, which
should keep marketwide vacancy near its current levels in the years to come.
Retail Completions
Healthy revenue growth will continue to present investment opportuni- 4

ties in the Orange County retail market. Sales activity has slowed, particular-
ly in the lower tiers, where the expectations gap between buyers and sellers 3
remains quite wide. Investor demand is still strong for the well-located,
newer assets, as evidenced by cap rates averaging roughly 6 percent. In 2
addition, a deep buyer pool is supporting prices and sales velocity for single-
tenant properties, primarily those in the $1 million to $2 million range that
1
are occupied by national credit tenants. Going forward, buyers may find
value in lower-tier properties priced between $3 million and $5 million;
0
assets in this segment are experiencing extended marketing periods, and 04 05 06 07* 08**
motivated sellers may be willing to lower prices to close a deal.
2008 Market Outlook
Asking Rent Vacancy
◆ 2008 NRI Rank: 8, Down 1 Place. Strong rent growth offset a minor $34 7%
vacancy uptick, keeping Orange County in the top 10 of this year’s index.
$32 6%
Vacancy Rate
◆ Employment Forecast: Employers are expected to increase hiring efforts
in 2007, adding 10,000 positions for a 0.7 percent gain. Last year, a
$30 5%
stream of layoffs by several major mortgage firms in Orange County
hampered total employment growth, and only 400 jobs were created.
$28 4%
◆ Construction Forecast: Developers will be less active in 2008 than in
recent years, bringing 1.1 million square feet of retail space to the $26 3%
market. Last year, 2.3 million square feet of new space came online. 04 05 06 07* 08**
◆ Vacancy Forecast: National retailers will continue to expand in Orange

County this year, although modest economic growth could put pressure Sales Trends
on some smaller local and regional tenants. As a result, vacancy is $500
expected to increase 20 basis points to a still-tight 4.1 percent.
$400
◆ Rent Forecast: Low vacancy will allow owners to implement rent gains
this year while keeping concessions essentially unchanged. Asking rents
are forecast to advance 3.9 percent to $32.66 per square foot, while $300
effective rents rise 3.8 percent to $30.12 per square foot.
$200
◆ Investment Forecast: Investors may find opportunities in some of the
more densely populated cities of the metro, such as Santa Ana and
Anaheim. Tenant demand in these areas is elevated, and construction is $100
03 04 05 06 07*
limited. As a result, buyers who redevelop older assets should have
sufficient leverage to attract tenants and implement strong rent growth. * Estimate ** Forecast

Orlando Up 7 Places 2008 Rank: 20 2007 Rank: 27
Out-of-State Exchange Buyers

Remain Active in Orlando
P
Employment Growth vs. Retail Sales rojections for strong population growth, a diversifying local economy
Employment Retail Sales and job creation in higher-paying industries underpin a positive long-
16% term outlook for Orlando’s retail market. In the near term, though,
supply is projected to grow faster than demand, leading to higher vacancy.
12% New properties, especially those built since 2004, are taking longer to fill as
national chains curtail openings and the number of local retailer startups
8% declines. The slight overhang of vacant space in the market at the beginning
of the year likely will require a few months to dissipate. A better balance of
4%
supply and demand may occur before 2008 comes to an end, however, based
upon some favorable trends. Specifically, retail sales grew approximately 5
percent in 2007, even with a slower rate of hiring and disruptions in the
0%
04 05 06 07* 08** housing sector; spending should subsequently remain healthy in 2008. Also,
the median price of a single-family home decreased moderately last year,
averting concerns that steeper declines would distress many homeowners
Retail Completions
and reduce retail spending. Moreover, affordability improved in the latter
4
half of 2007, a trend that should continue this year, freeing up more cash for
spending on goods and services.

3
In the investment market, cap rates are expected to average from the
2 mid-6 percent range for top single-tenant assets occupied by credit tenants to
7.8 percent to 8.8 percent for smaller, older strip centers. This year, exchange
1 buyers from other states will maintain a strong presence in the market due
to its extremely favorable long-term prospects and relatively affordable
0
prices. Multi-tenant assets in established locations, such as western Orange
04 05 06 07* 08** County and southeast Orlando, will continue to draw interest from risk-
averse buyers. Repositioning opportunities may emerge along the projected
Asking Rent and Vacancy Trends path of a light-rail system and down U.S. Route 17-92, where road widening
Asking Rent Vacancy and other improvements are being considered.
$22 12%
2008 Market Outlook

$20 11%
Vacancy Rate
◆ 2008 NRI Rank: 20, Up 7 Places. A thriving tourism industry is expected

$18 10% to support retail sales, boosting Orlando seven spots in this year’s index.
$16 9%
◆ Employment Forecast: This year, employers are expected to add 21,800
jobs, a 1.7 percent gain but down from 25,100 positions in 2007.
$14 8%
04 05 06 07* 08** ◆ Construction Forecast: Developers will complete 2.8 million square feet
of retail space this year, down from 3.5 million square feet in 2007.
Future development will push into communities such as Clermont and
Sales Trends
Groveland in Lake County, while a commuter rail line near downtown
$400 Orlando could spur additional retail projects in the area.
$300 ◆ Vacancy Forecast: Vacancy will rise 40 basis points to 9.4 percent in 2008,
as moderating demand is extending the time needed to fill new space.
$200
◆ Rent Forecast: Asking rents will gain 3.5 percent to $19.51 per square
foot, while effective rents rise 4.2 percent to $17.67 per square foot.
$100
◆ Investment Forecast: Forward-looking property owners may want to

$0 accelerate searches for development sites in several areas, including
03 04 05 06 07*
Clermont, Minneola and Groveland in Lake County, as well as along the
* Estimate ** Forecast Innovation Way corridor in East Orlando.

Up 2 Places 2008 Rank: 29 2007 Rank: 31 Philadelphia
Repositioning Plays Attracting

Investors to Philadelphia Retail Assets
P
hiladelphia’s retail market is positioned to post solid results in 2008, Employment Growth vs. Retail Sales
bolstered by modest retail sales growth and the metro’s relative Employment Retail Sales
immunity to the steep housing market downturn, which is afflicting 8%
other regions. Vacancy is expected to improve for the fifth consecutive year,
and rents will grow modestly, particularly among Center City properties and 6%
Class A shopping centers in supply-constrained areas. Supply growth,
meanwhile, will be minimal as owners and builders focus on the redevelop- 4%
ment of older properties and reclamation of vacant industrial locations. The
developers of Uptown Worthington, for example, will reconfigure a former 2%
manufacturing site in Chester County into a mixed-use property with
750,000 square feet of retail space. Additionally, local authorities have
0%
authorized the redevelopment of a large area in Norristown that includes the 04 05 06 07* 08**
Logan Square Shopping Center. Finally, the face of Center City is changing,
with the planned development of 120,000 square feet of retail space on Vine
Retail Completions
Street and the continuing migration of national chains to Chestnut Street.
5

Retail properties in Philadelphia will continue to generate strong interest
from local owners looking to expand their portfolios, as well as investors from 4
New York and Washington, D.C., where prices are generally higher. Buyers
should expect to see cap rates in the low-7 percent range for Class A 3
properties and from 7.7 percent to 8.3 percent for Class B/C assets.
Experienced investors that seek to add value by turning over tenants, filling 2
excess vacancy or correcting physical defects will increasingly focus upon
internal rates of return rather than cap rates. Meanwhile, sales of single-tenant 1
net-leased assets may continue to slow until financing spreads normalize. 04 05 06 07* 08**
2008 Market Outlook Asking Rent and Vacancy Trends

Asking Rent Vacancy
◆ 2008 NRI Rank: 29, Up 2 Places. Slowing construction, improving $21 10%
vacancy and steady rent growth pushed Philadelphia up two spots in
this year’s ranking. $20 9%
Vacancy Rate
◆ Employment Forecast: One year after 27,000 positions were created,
$19 8%
employers are expected to add 19,000 jobs, a 0.6 percent increase.
◆ Construction Forecast: Developers are on track to complete 1.6 million $18 7%

square feet of retail space this year, compared with 2 million square feet
in 2007. The largest projects slated for delivery are the 469,000-square $17 6%
04 05 06 07* 08**
foot Levittown Town Center in Bucks County and the 330,000-square
foot Shoppes at Cinnaminson in Burlington County.
Sales Trends
◆ Vacancy Forecast: With a decline in supply growth, marketwide Single-Tenant Multi-Tenant
$250
vacancy is forecast to fall 40 basis points in 2008 to 6.4 percent.
◆ Rent Forecast: This year, asking and effective rents are each expected to $200
rise 2.5 percent to $20.41 per square foot and $18.56 per square foot,
respectively. Minimal rent growth at older properties will offset more $150
robust rent gains among new assets.
$100
◆ Investment Forecast: Upgrading and repositioning older properties in
all areas of the market will remain a common strategy for owners and
investors. Elsewhere, new development and redevelopment opportuni- $50
03 04 05 06 07*
ties will increasingly attract buyers to the Lehigh Valley, which is just
outside of the metro area. * Estimate ** Forecast

Phoenix Down 10 Places 2008 Rank: 13 2007 Rank: 3
Long-Term Growth Prospects Attracting

Investors Despite Vacancy Rise
T
Employment Growth vs. Retail Sales urbulence in the local housing market is expected to curtail local
Employment Retail Sales economic growth in 2008, but the region’s outstanding long-term
16% demand drivers still support a positive extended outlook. Developers
have already begun to respond to the changing climate, as metrowide con-
12% struction is projected to slow from last year’s pace. Construction in Peoria,
Avondale and Buckeye, however, will increase as builders target premium
8% locations in the path of future population growth. The West Valley is
expected to record explosive expansion; Avondale’s population will nearly
4%
double over the next 10 years, while the number of residents in Buckeye is
forecast to more than triple by 2010. In addition, the metro’s infrastructure
continues to improve, with the expansion of Interstate 10 serving as a
0%
04 05 06 07* 08** catalyst for future employment growth. In Glendale, the completion of the
University of Phoenix Stadium will continue to transform the city into a
unique shopping, entertainment and residential location.
Retail Completions
12
Investor demand for retail properties will remain elevated in 2008, as
out-of-state buyers continue to be drawn to the metro’s economic vitality. As

9 2007 came to a close, single-tenant retail properties were changing hands in
the high-6 percent range, while initial yields for multi-tenant assets averaged
6 in the mid-7 percent range. This year, investors will seek higher yields to
compensate for inflated lender spreads, and cap rate increases will likely be
3 most significant in older strip center properties, where owners may shift
prices to avoid long marketing times. Attractive demographics will continue
0
to bring private out-of-state buyers to the metro in 2008, although investors
04 05 06 07* 08** may opt to target safer infill properties occupied by national credit tenants.
Local buyers will likely focus on older centers that have been undermanaged
Asking Rent and Vacancy Trends in locations such as Glendale, the Tempe/South Phoenix submarket and the
Asking Rent Vacancy western boundary of the Mesa/Chandler/Gilbert area.
$20 8%
2008 Market Outlook

$19 7%
Vacancy Rate
◆ 2008 NRI Rank: 13, Down 10 Places. Housing concerns and a significant
$18 6%
influx of new construction caused Phoenix to drop 10 spots in the index.
◆ Employment Forecast: Job growth in Phoenix, while above the national

$17 5% average, will slow this year. Employers will add 25,100 jobs, a 1.3
percent gain, down from 28,200 positions in 2007.
$16 4%
04 05 06 07* 08**
◆ Construction Forecast: Approximately 7.5 million square feet will be
delivered in 2008; 8.4 million square feet came online last year.
Sales Trends
Single-Tenant Multi-Tenant ◆ Vacancy Forecast: After climbing 170 basis points in 2007, supply
$400
growth and the effects of reduced consumer spending on retail demand
will push vacancy up 50 basis points to 7.7 percent this year.

$300
◆ Rent Forecast: Asking rents are expected to increase 3.3 percent in 2008
$200 to $19.89 per square foot, while effective rents gain 3.1 percent to $17.73
per square foot.
$100 ◆ Investment Forecast: The rapidly expanding West Phoenix/Southwest
Valley submarket may be home to some strong buying opportunities
$0 this year, as developers have built in advance of demand. Owners of
03 04 05 06 07* well-located properties with high vacancy may increasingly look to sell
* Estimate ** Forecast rather than wait for the market to rebound.

Up 7 Places 2008 Rank: 10 2007 Rank: 17 Portland
Several Years of Above-Average Job Growth,

Limited Supply Spur Portland Retail Market
P
ortland’s economy will continue to expand this year, providing a Employment Growth vs. Retail Sales
positive outlook for retail property performance. Vacancy in the metro Employment Retail Sales
is expected to hover in the high-5 percent range, primarily as a result of 12%
the area’s urban growth boundary that inhibits supply growth often
generated by urban sprawl. Additionally, the passage of Measure 49 will 9%
restrict new development on farmland near the city. Effectively, the measure
will slow the process of construction and potentially leave some ongoing 6%
projects mired in court proceedings. As a result of the new law, rent growth
will remain strong again this year, as retailers will have limited options 3%
available for expansion. Future construction will be concentrated near
affluent areas of the metro, such as Forest Heights, and consist of pedestrian-
0%
friendly lifestyle centers. The West Village shopping center, for example, 04 05 06 07* 08**
recently received approval and is expected to break ground this year. Big-
box construction continues to face significant opposition in the metro,
Retail Completions
insulating owners from competition.
4

The retail investment climate remains healthy in Portland, supported by
strong fundamentals and competitive cap rates. In the western half of the 3
metro, transaction velocity likely will stay subdued due to the limited
number of listings. Multi-tenant cap rates on the west side are currently in 2
the low-7 percent range, and have stayed as much as 30 basis points below
the metro average due to significant investor demand. On the east side of the 1
Willamette River, cap rates will remain higher, and investors can routinely
find single-tenant properties trading at cap rates that are 50 basis points 0
higher than the high-6 percent range for the entire market. Rent gains for all 04 05 06 07* 08**
retail properties on the east side, however, have been sluggish over the past
few years, as owners have attempted to maintain occupancy. Nevertheless, Asking Rent and Vacancy Trends
with limited construction activity forecast for the metro, some assets in the Asking Rent Vacancy
Eastside/Gresham area are poised for significant revenue growth. $21 15%
Vacancy Rate
◆ 2008 NRI Rank: 10, Up 7 Places. Strong forecast rent growth pushed
$19 9%
Portland up seven spots in the NRI.
◆ Employment Forecast: Employment growth is forecast to reach 1.2 $18 6%

percent this year with the addition of 12,800 jobs. In 2007, 11,500
positions were created in the metro. $17 3%
04 05 06 07* 08**
◆ Construction Forecast: Developers are expected to deliver 1.3 million
square feet of retail space in 2008, increasing inventory 1.7 percent. Last
Sales Trends
year, 1.5 million square feet was completed.
$250
◆ Vacancy Forecast: Despite healthy tenant demand, vacancy is expected
to increase 30 basis points to a still-tight 5.8 percent this year.

$200
◆ Rent Forecast: Conditions remain favorable for rent growth despite the
rise in vacancy. Asking rents are anticipated to reach $20.31 per square $150
foot this year, while effective rents finish 2008 at $18.26 per square foot,
gains of 3.6 percent and 3.4 percent, respectively. $100
◆ Investment Forecast: Buyers may want to seek properties in the

Vancouver/Clark County submarket, which will record metro-leading $50
03 04 05 06 07*
rent growth this year due to tight conditions. Relatively lax zoning
restrictions, however, heighten the risk of new construction in the area. * Estimate ** Forecast

Riverside-San Bernardino Down 7 Places 2008 Rank: 23 2007 Rank: 16
Supply Growth, Easing Tenant Demand

Define Inland Empire Retail Sector
W
Employment Growth vs. Retail Sales hile an increase in construction activity will lead to an uptick in
Employment Retail Sales vacancy this year, the Inland Empire’s strong demand drivers
16% support a favorable long-term outlook. Relatively affordable land
and housing continue to attract employers and skilled workers to the region;
12% the area is forecast to receive more than 450,000 new residents over the next
five years. Going forward, the metro will add higher-paying jobs in
8% population-driven industries, such as the professional and business services
sector. On the supply side, master-planned communities in Temecula and
4%
Murrieta are fueling retail construction in South Riverside County, which is
forecast to receive 2.2 million square feet of new retail space this year. In
addition, the 380,000-square foot High Desert Gateway will include
0%
04 05 06 07* 08** Hesperia’s first big-box retailer in nearly two decades. The project is
expected to spur additional large-scale commercial development along the
Interstate 15 corridor, as the region is recording rapid household growth.
Retail Completions
8
Although the Inland Empire’s fundamentals remain mixed, local
investors will continue to expand their portfolios. Single-tenant retail in the

7 area’s stable western region is attracting buyers, as the area benefits from the
heavy traffic generated by daily commuters to nearby coastal counties. Cap
6 rates for such assets were in the low-6 percent range in 2007 but will likely
edge higher this year as prices begin to moderate. Single-tenant properties
5 with credit tenants in established areas, such as Rancho Cucamonga,
however, are expected to maintain strong valuations. In addition, assets in
4
downtown San Bernardino will attract a great deal of buyer interest in the
04 05 06 07* 08** near term, as plans are under way to revitalize the area. Cap rates for
anchored multi-tenant properties downtown averaged in the low- to mid-6
Asking Rent and Vacancy Trends percent range last year but will likely push somewhat higher in 2008.
Asking Rent Vacancy
$24 16% ◆ 2008 NRI Rank: 23, Down 7 Places. The Inland Empire dropped seven
Vacancy Rate
spots in the index due to new construction and an elevated vacancy rate.
$18 12%
◆ Employment Forecast: Employers are expected to slow hiring in the
$12 8%
Inland Empire this year with the addition of 31,000 new jobs, compared
with 39,800 positions in 2007.
$6 4%
04 05 06 07* 08** ◆ Construction Forecast: Retail property completions are forecast to total
6.8 million square feet in 2008, up from 5.2 million square feet last year.
Sales Trends
◆ Vacancy Forecast: Supply growth and reduced consumer spending
$300 stemming from the housing downturn are expected to push vacancy up
90 basis points to 12.8 percent this year.

$250
◆ Rent Forecast: Despite an increase in vacancy, the delivery of more
expensive retail space will boost market rents. Asking rents are expected
$200
to reach $23.69 per square foot, a 4.5 percent gain, while effective rents
will rise 4.2 percent to $21.46 per square foot.
$150
◆ Investment Forecast: Investors in Ontario may want to monitor the

$100 growth of the New Model Colony project, a 31,000-home master-
03 04 05 06 07*
planned community. This development, which will include two power
* Estimate ** Forecast centers, represents one of the largest infill developments in the West.

Down 3 Places 2008 Rank: 31 2007 Rank: 28 Sacramento
Institutional Investors Remaining Active in

Sacramento Retail, Despite Housing Market
S
teady household growth will support retail spending in Sacramento, Employment Growth vs. Retail Sales
driving positive performance. Continued job growth and a comparative- Employment Retail Sales
ly low cost of living are attracting new residents to the metro, with 12%
forecasts calling for 14,000 new households, or a nearly 2 percent gain, in 2008.
This expansion trend is likely to persist, with retailers serving as many as 9%
80,000 additional households in the local market over the next five years.
Developers have ramped up construction efforts to meet future retailer 6%
demand, generating a vacancy increase in 2007. Construction this year will be
similar to last year’s total; however, the 1.1 million-square foot Elk Grove 3%
Promenade will account for more than half of the new space. The open-air
center, located in one of the metro’s lowest-vacancy submarkets, is scheduled
0%
to come online almost completely pre-leased during the fourth quarter. 04 05 06 07* 08**
Investment activity in the Sacramento retail market remains healthy, as

Retail Completions
buyers are drawn to the region’s growing economy and newer investment-
4
grade inventory. Investor demand over the past year has been particularly

elevated for multi-tenant properties, as institutions have stepped up acquisi-
tions in growing suburbs. Strong buying activity has kept cap rates in the 3
mid-6 percent to low-7 percent range, but initial yields could inch higher in
2008 if financing costs increase. Investment opportunities may emerge in the 2
Downtown/South Sacramento submarket this year, where several high-end
condo towers planned for the area have stalled; subsequently, retail property 1
owners who were counting on this residential expansion in 2008 and 2009
may be looking for a quick exit strategy. 0
04 05 06 07* 08**
2008 Market Outlook

◆ 2008 NRI Rank: 31, Down 3 Places. A weak housing market and modest Asking Rent Vacancy
$26 10%
retail sales growth caused Sacramento to slip three spots in the index.
◆ Employment Forecast: Sacramento’s large government sector serves as $24 9%
Vacancy Rate
a stabilizing force for the local economy. In 2008, 8,400 jobs will be
created, a 0.9 percent gain. $22 8%
◆ Construction Forecast: New construction is expected to total 1.9 million $20 7%

square feet in 2008, nearly identical to last year’s deliveries. More than
half of this year’s new retail space will be concentrated in one project.
$18 6%
04 05 06 07* 08**
◆ Vacancy Forecast: Retailers will continue to move into Sacramento, and
the metro’s major development is expected to come online largely pre-
Sales Trends
leased. As a result, vacancy is forecast to decline 40 basis points to 8.2
percent, with most submarkets recording modest improvements. $300
◆ Rent Forecast: Owners will leverage steady tenant demand to raise rents. $250
This year, asking rents should push 3.9 percent higher to $25.04 per
square foot. Concessions are expected to remain near current ranges, with
$200
effective rents forecast to advance 4.1 percent to $22.31 per square foot.
$150
◆ Investment Forecast: The West Sacramento area, which has typically
been underserved by retail, is beginning to expand rapidly. This could
present some outstanding long-term growth opportunities. Late in 2007, $100
the city’s redevelopment agency endorsed a 200-acre riverfront project 03 04 05 06 07*
that would add residential and retail space over the next several years. * Estimate ** Forecast
Market Forecast Employment: 0.9% ▲ Construction: 0% ■ Vacancy: 40 bps ▼ Asking Rents: 3.9% ▲

Salt Lake City Up 8 Places 2008 Rank: 26 2007 Rank: 34
Strong Economic Conditions Continue to

Draw Investors to Salt Lake City
T
Employment Growth vs. Retail Sales he Salt Lake City retail market will exhibit strength throughout 2008 as
Employment Retail Sales steady job growth and residential expansion drive retailer demand.
8% Although the housing market is weighing on consumer confidence
throughout much of the country, the single-family market in Salt Lake City
6% remains healthy, and prices continue to push higher. In addition, metrowide

job growth will again outpace the national average, led by the higher-paying
4% professional and business services sector. The city’s CBD is currently
undergoing a substantial transformation, highlighted by the $1.5 billion rede-
2%
velopment of the mixed-use City Creek Center, which has generated business
and residential interest in the downtown area. Upon its completion in mid-
2011, the project will add 500,000 square feet of retail space to metro
0%
04 05 06 07* 08** inventory. Marketwide, construction is expected to subside this year, allowing
for modest occupancy improvements and rent growth.
Retail Completions
Buyers will remain active in Salt Lake City this year, motivated by a
4
strong local economic outlook, as well as cap rates that are relatively high
compared to other Western markets. Currently, cap rates are averaging in the
3 low- to mid-7 percent range, although the healthy amount of completions
could place downward pressure on average rates as newer properties
2 exchange at premium valuations. Downtown redevelopment efforts are
providing investors with long-term prospects for area retail, while rising
1 tenant demand in response to residential growth is causing prices to increase.
The investment outlook remains bright for properties located in the Southwest
0
submarket, with continued residential growth in West Jordan supporting
04 05 06 07* 08** investor demand for area retail, resulting in above-average price appreciation.

Asking Rent Vacancy
$18 10%
◆ 2008 NRI Rank: 26, Up 8 Places. Salt Lake City climbed eight places in
this year’s NRI, fueled by robust employment growth.

$17 9%
Vacancy Rate
◆ Employment Forecast: Employers within the Salt Lake City market are
$16 8% expected to add 20,000 positions in 2008, an increase of 3.1 percent. Last
year, employers created 24,000 new jobs.
$15 7%
◆ Construction Forecast: Developers are forecast to deliver 1.1 million
$14 6%
square feet of new retail space by year end. In 2007, 2.1 million square
04 05 06 07* 08** feet came online in the metro. Nearly 45 percent of this year’s additions
will be concentrated in the Upper Counties submarket.
Sales Trends
◆ Vacancy Forecast: After shedding 20 basis points last year, vacancy is
$200 expected to decline 10 basis points to 7.7 percent in 2008. Salt Lake City’s
healthy economy should support continued retail sales growth, albeit at

$150 a more modest pace than in recent years, fueling steady absorption.
$100 ◆ Rent Forecast: Rising tenant demand, modest occupancy improvements

and healthy retail sales will allow for rent growth. Asking rents are
expected to advance 1.7 percent to $16.60 per square foot, while effective
$50
rents will push up 1.2 percent to $14.82 per square foot by year end.
$0 ◆ Investment Forecast: Investors may want to look to the Sandy/Midvale

03 04 05 06 07*
submarket, where healthy tenant demand and a lack of significant new
* Estimate ** Forecast construction are expected to drive robust revenue growth in 2008.

Down 3 Places 2008 Rank: 32 2007 Rank: 29 San Antonio
San Antonio Retail Building Boom

Expected to End in 2008
D
emand for San Antonio retail assets will be driven by expansion in the Employment Growth vs. Retail Sales
local economy this year. Bucking the national trend, local employers Employment Retail Sales
will accelerate hiring efforts, as exemplified by a projected 4 percent 12%
uptick in the traditionally higher-paying professional and business services
sector. Additional demand will stem from the healthy local tourism industry, 9%
supported by attractions such as Six Flags Fiesta Texas and Sea World. As a
result, retail sales are expected to climb by nearly 4 percent in 2008, signifi- 6%
cantly above the national average. On the supply side, expansion of existing
power centers in the North/North Central and Northwest submarkets will 3%
account for much of the additions to inventory over the next few years.
Development is slowing throughout the metro; completions will come in
0%
well below recent levels, and the planning pipeline consists of only 6 million 04 05 06 07* 08**
square feet, 20 percent less than one year ago. The only major new project
slated for completion in 2008 is the 960,000-square foot Alamo Ranch in the
Retail Completions
Northwest submarket.
8

Investment in San Antonio will remain healthy, though some buyers
may sit on the sidelines until the second half of the year, when deliveries are 6
expected to begin to cool. Single-tenant properties, where cap rates are in the
low-7 percent range, will attract a variety of investors in 2008, particularly in 4
newly developed sites in growing communities north and west of the city
center. Multi-tenant activity is projected to slow during the first half of the 2
year as buyers shy away from older properties that are struggling to retain
tenants in the wake of new projects. Many of these older assets are offering 0
above-average concessions to fill space around anchors, a trend that is 04 05 06 07* 08**
expected to continue into next year. As building activity eases during the
third and fourth quarters, buyers will likely begin to target more stabilized Asking Rent and Vacancy Trends
multi-tenant properties with initial yields in the high-7 percent range. Asking Rent Vacancy
$16 18%
2008 Market Outlook

$15 16%
Vacancy Rate
◆ 2008 NRI Rank: 32, Down 3 Places. Rising vacancy pushed San Antonio
down three places in the rankings this year, despite strong job growth. $14 14%
◆ Employment Forecast: Employment growth is expected to accelerate to $13 12%

2.3 percent with the addition of 19,400 positions in 2008. Last year,
employers added 16,800 jobs. $12 10%
04 05 06 07* 08**
◆ Construction Forecast: This year, developers will deliver 2.7 million
square feet of retail space in San Antonio, expanding inventory by 3.3 Sales Trends
percent. In 2007, 4 million square feet came online. Single-Tenant Multi-Tenant
$250
◆ Vacancy Forecast: Elevated construction will contribute to a 140 basis

point increase in vacancy to 15.7 percent this year. The vacancy rate rose $200
330 basis points in 2007, as absorption of new space was slow.
$150
◆ Rent Forecast: In 2008, asking rents will advance 3.2 percent to $15.36
per square foot. Effective rents are forecast to gain 2.7 percent to $13.62
$100
per square foot as owners increase concessions to fill space.
◆ Investment Forecast: Investors may want to target properties along the $50
03 04 05 06 07*
Interstate 10 corridor outside of Loop 1604, where demand for housing
is shifting due to elevated congestion along Highway 281. * Estimate ** Forecast

San Diego Up 4 Places 2008 Rank: 2 2007 Rank: 6
Strong Fundamentals Keep

San Diego on Buyers’ Lists
D
Employment Growth vs. Retail Sales espite the softening single-family market, the outlook for the San
Employment Retail Sales Diego retail property market is positive, driven by job and wage
12% growth, as well as slowing development. Although employment
growth has decelerated somewhat over the past year, employers continue to
9% expand payrolls, primarily in the leisure and hospitality sector. In addition,

household incomes in San Diego will rise at an above-average rate again this
6% year. While the outlook for retail demand remains stable, the cost of con-
struction has risen, resulting in limited additions to supply. Completions are
3%
expected to decline 22 percent over last year’s deliveries, with new stock rep-
resenting a 1.3 percent increase to inventory. Tenant demand, coupled with
a decrease in new inventory, is supporting robust growth in marketwide
0%
04 05 06 07* 08** rents. Investors should note, however, that growing consumer concerns
regarding the housing market could begin to weigh on confidence,
potentially weakening retail space demand.
Retail Completions
4
San Diego’s retail investment market remains healthy, although velocity
has cooled as buyers continue to underwrite deals using current operating

3 fundamentals rather than pro forma numbers. The soft residential market
will limit the number of multi-family investors transitioning to retail
2 investments, reducing competition among buyers. Lighter demand may
push cap rates for core assets up nearly 50 basis points this year, while first-
1 year returns on lower-tier properties could climb more than 100 basis points.
While demand will remain strongest for core assets in supply-constrained
0
locations that are positioned for long-term rent growth, buyers should be
04 05 06 07* 08** mindful of neighborhood businesses. Slowing economic conditions will
likely affect smaller retailers first, applying pressure on vacancy and
Asking Rent and Vacancy Trends potentially causing rent corrections.
Asking Rent Vacancy
$30
◆ 2008 NRI Rank: 2, Up 4 Places. San Diego moved up four places in the
5%
Vacancy Rate
index this year due to strong rent growth and tight occupancy levels.
$27 4% ◆ Employment Forecast: Local employers are expected to increase
payrolls 0.9 percent in 2008 with the addition of 11,800 positions. Last
$24 3% year, 12,300 jobs were created.
$21 2% ◆ Construction Forecast: Developers will construct 1.4 million square feet
04 05 06 07* 08**
of retail space this year, down from 1.8 million square feet in 2007.
Sales Trends ◆ Vacancy Forecast: After increasing 40 basis points last year, vacancy is
Single-Tenant Multi-Tenant expected to rise 20 basis points to 3.2 percent in 2008. In the Northeast
$400
submarket, however, vacancy is anticipated to improve 10 basis points
to 3.3 percent.
$300
◆ Rent Forecast: Despite a slight uptick in vacancy, conditions remain
$200 tight and will support strong rent growth. Asking rents are estimated to
rise 6.5 percent to $31.14 per square foot, while effective rents gain 6
$100
percent to $28.28 per square foot.
◆ Investment Forecast: Investors will continue to target core assets in

$0 mature locations. Submarkets in the South Bay area of San Diego will
03 04 05 06 07*
remain highly sought-after as a lack of new construction ensures tight
* Estimate ** Forecast market conditions and strong rent growth going forward.

Up 7 Places 2008 Rank: 1 2007 Rank: 8 San Francisco
Lack of New Supply, Job Growth

Propel San Francisco to Top Spot
S
teady hiring among local employers and a lack of new construction will Employment Growth vs. Retail Sales
lead to healthy performance in the San Francisco retail market in 2008. Employment Retail Sales
The metro’s largest employment sector, professional and business 8%
services, will continue to expand, underpinning local economic growth. In
addition, demand drivers such as consistent population growth and strong 6%
tourism revenues, will drive retail spending moderately higher again this
year. Elevated development costs and legislative hurdles are limiting retail 4%
construction and pushing vacancy lower throughout the San Francisco
market, supporting healthy rent growth. Investors may want to monitor the 2%
progress of the San Francisco Planning Department’s Eastside
Neighborhoods Plan, which could transform some of the area’s industrial
0%
space into high-end housing and boutique retail space. Additionally, the 04 05 06 07* 08**
Union Square area is attracting luxury retailers, as evidenced by the late-2007
opening of Barneys, as well as the planned arrival of De Beers and Prada
Retail Completions
early this year, which should support additional rent growth going forward.
2.0
Healthy operating fundamentals and steady revenue gains continue to

fuel investor demand for San Francisco’s retail properties. Cap rates began to 1.5
edge slightly higher in the second half of last year to the high-4 percent to
low-5 percent range. Properties on major commercial strips like Polk Street 1.0
and Union Street remain popular with investors due to minimal vacancy and
steady rent growth. Continued price appreciation has kept some buyers on 0.5
the sidelines amid concerns that the market may be overheated; however,
San Francisco’s numerous large, private investors have sustained activity, 0.0
spurring further price appreciation. Transaction activity in the metro will 04 05 06 07* 08**
continue to be concentrated in mixed-use projects featuring ground-floor
retail below residential space. Asking Rent and Vacancy Trends
Asking Rent Vacancy
◆ 2008 NRI Rank: 1, Up 7 Places. San Francisco claimed the top spot in the
$34 8%
Vacancy Rate
NRI due to forecasts for strong rent growth and declining vacancy.
◆ Employment Forecast: Local employers will continue to make steady $32 6%

additions to payrolls in 2008, creating 10,200 jobs for a 1 percent gain.
Last year, metrowide employment grew by 1.3 percent. $30 4%
◆ Construction Forecast: Land constraints will hamper retail

$28 2%
development this year. Forecasts call for 100,000 square feet to be 04 05 06 07* 08**
completed, down from 550,000 square feet in 2007.
◆ Vacancy Forecast: A healthy local economy, combined with modest Sales Trends
additions to new space, will result in a 60 basis point decline in vacancy $500
to 3.1 percent. Last year, tenant demand was strong enough to support
a 100 basis point decrease in vacancy.

$400
◆ Rent Forecast: With vacancy continuing to improve, owners will step up
rents and further reduce concessions in 2008. Asking rents are forecast $300
to push 3.5 percent higher to $34.76 per square foot, while effective rents
will gain 3.8 percent to $32.40 per square foot. By year end, concessions $200
are expected to reach their lowest level since 2003.
◆ Investment Forecast: Investors may find opportunities in the North of $100

03 04 05 06 07*
Panhandle area of Haight-Ashbury, which is enjoying a modest revital-
ization and could present some upside in the coming years. * Estimate ** Forecast
Market Forecast Employment: 1% ▲ Construction: 82% ▼ Vacancy: 60 bps ▼ Asking Rents: 3.5% ▲

San Jose Up 5 Places 2008 Rank: 5 2007 Rank: 10
Tech Revival, Low Vacancy

Driving San Jose Retail
H
Employment Growth vs. Retail Sales ealthy economic growth, coupled with tight conditions, should
Employment Retail Sales support continued revenue gains in the San Jose retail market this
8% year. The strength of the technology industry is a catalyst for the
metro’s economic expansion, with major firms such as Google, Yahoo and
6% Apple steadily adding to payrolls. While job growth will slow in the near
term, local vacancy will remain among the lowest in the nation, as this year’s
4% deliveries will come in well below the metro’s five-year annual average of
800,000 square feet. The development pipeline is filling up, however,
2%
highlighted by the mixed-use Sunnyvale Town Center, which is scheduled to
be completed in the second half of 2009. The project will include 1 million
square feet of retail space and 315,000 square feet of Class A office space, as
0%
04 05 06 07* 08** well as hotel and residential. The project is expected to serve as a stimulus to
Sunnyvale’s downtown revitalization.
Retail Completions
Strong fundamentals will attract buyers to the San Jose retail market,
2.0
although the modest inventory of listed properties will restrict sales activity.
Cap rates for single-tenant assets are averaging in the mid-4 percent to low-
1.5 5 percent range, making it difficult for leveraged buyers to meet tighter
underwriting standards without significant downpayments. As such, cash
1.0 buyers may find themselves in an advantageous negotiating position. Multi-
tenant cap rates average in the low- to mid-6 percent range, and with new
0.5 construction a challenge, many shopping center buyers are pursuing
properties that feature expansion and redevelopment opportunities.
0.0
04 05 06 07* 08** 2008 Market Outlook
Asking Rent and Vacancy Trends ◆ 2008 NRI Rank: 5, Up 5 Places. Steady retailer demand and minimal con-
Asking Rent Vacancy
struction caused San Jose to climb into the top five of the index this year.
$34 6% ◆ Employment Forecast: Local technology firms will continue to take on
new staff in 2008. Metrowide employment is forecast to expand by 6,600

$32 5% positions, or 0.7 percent. Hiring activity was more robust last year, when
Vacancy Rate
11,000 jobs were created.

$30 4%
◆ Construction Forecast: Retail construction will slow considerably this
$28 3%
year, as only 250,000 square feet of new space is forecast to be
completed, down from 950,000 square feet in 2007.
$26 2% ◆ Vacancy Forecast: With modest construction and healthy economic
04 05 06 07* 08**
growth expected, metrowide vacancy will remain tight. By year end,
vacancy is forecast to decline 10 basis points to 3 percent, matching last
Sales Trends year’s improvement.
$500
◆ Rent Forecast: Owners will have sufficient leverage to implement
steady rent gains, given San Jose’s already tight conditions and limited
$400 competition from new space. This year, asking rents are expected to
increase 4.4 percent to $32.94 per square foot, while effective rents
$300 advance 4.9 percent to $30.47 per square foot.
◆ Investment Forecast: Much of San Jose’s retail investment will be con-

$200
centrated in single-tenant assets, as only a handful of multi-tenant
properties change hands each year. The increasing difficulty in
$100 obtaining financing is hampering the number of large deals, but private
03 04 05 06 07*
investors are expected to remain active in pursuing assets priced
* Estimate ** Forecast between $1 million to $5 million.

Up 2 Places 2008 Rank: 3 2007 Rank: 5 Seattle
New Construction Overshadowed by

Economic, Demographic Strength
S
eattle’s strong economy and healthy demand drivers underpin an Employment Growth vs. Retail Sales
optimistic outlook for the local retail property market. Retail spending is Employment Retail Sales
expected to exceed the national rate this year, as demographic trends in 12%
the metro remain mostly favorable. For example, the cost of living in Seattle is
only marginally higher than the national average, leaving residents with more 9%
disposable income than in comparable markets. New construction, however,
will outpace demand growth this year and put upward pressure on vacancy. 6%
Lower occupancy levels will be short-lived, though, as development in close-
in areas remains difficult and costly, prompting builders to have significant 3%
lease commitments in place before breaking ground. Big-box retailers are
beginning to consider smaller layouts around the metro due to the limited
0%
availability of developable sites in urban neighborhoods. 04 05 06 07* 08**
Investment activity will ease to a sustainable pace in 2008, with local

Retail Completions
operators participating in the greatest percentage of deals. Out-of-state
4
buyers, however, will seek single-tenant assets, which are currently trading

in the high-6 percent to low-7 percent range. Single-tenant properties in
growing suburbs are likely to trade at the lower end of the range due to 3
additional interest from syndicators. On the other hand, multi-tenant
properties, where cap rates average in the low-7 percent range, offer only a 2
modest risk premium as a result of the area’s impressive rent growth over
the past few years. Tighter lending standards, however, are expected to put 1
upward pressure on multi-tenant cap rates in 2008. Local buyers will
leverage their knowledge of the market and maintain a significant presence 0
in the multi-tenant market. Redevelopment and repositioning opportunities 04 05 06 07* 08**
are plentiful in urban areas and in Bellevue, where high population density
and affluent households are escalating retailer demand. Asking Rent and Vacancy Trends
Asking Rent Vacancy
$26 10%
2008 Market Outlook
◆ 2008 NRI Rank: 3, Up 2 Places. Seattle’s two-spot move up in the NRI was $24 9%
Vacancy Rate
driven by comparatively strong job growth and above-average rent gains.
$22 8%
◆ Employment Forecast: Employment growth will slow to 1.9 percent this
year with the creation of 34,000 positions. In 2007, employers expanded $20 7%
payrolls by 44,500 jobs.
$18 6%
◆ Construction Forecast: Development of retail space will accelerate to 2 04 05 06 07* 08**
million square feet in 2008, adding 1.6 percent to stock. This year’s
scheduled deliveries are 60 percent greater than the five-year average. Sales Trends
◆ Vacancy Forecast: Slower job growth and heightened construction $300
activity will raise vacancy 60 basis points in 2008 to 7.8 percent. Last
year, the vacancy rate inched up 10 basis points. $250
◆ Rent Forecast: Retail asking rents are expected to climb 3.7 percent to $200
$24.32 per square foot by year-end 2008. Effective rents will advance 3.4
percent to $22.21 per square foot as owners increase concessions slightly.
$150
◆ Investment Forecast: Buyers may want to target assets along the proposed
streetcar route from the University District to the International District. $100
03 04 05 06 07*
Current proposals place the route along Eastlake Avenue through
downtown Seattle and into the University District via First Avenue. * Estimate ** Forecast

St. Louis New to NRI 2008 Rank: 36 2007 Rank: NA
St. Louis Retail Builders, Investors

Focused on Destination Locations
T
Employment Growth vs. Retail Sales he St. Louis retail market will be aided by gentrification efforts,
Employment Retail Sales increasing retail development in some of the metro’s high-density
8% destination locations. For example, the Chouteau’s Landing area south
of the Edward Jones Dome downtown is beginning to show signs of evolving
6% into a vigorous retail trade area. North of the stadium, plans to transform the
Bottle District into a family-friendly retail location are also taking shape.
4% Area developers are seeking to take advantage of the increasing population
density that has been generated from condo construction over the last four
2%
years. Across the river in Illinois, the new Belleville Crossing shopping
center will support a growing number of households. New home
development has moved into the area due to its proximity to several
0%
04 05 06 07* 08** downtown attractions, as well as a lack of available land on the Missouri side
of the river. While these projects are stimulating economic growth, and the
development of new space is expected to result in increasing retail vacancy
Retail Completions
in 2008, the long-term outlook remains positive.
4
The unique blend of a growing local economy and favorable initial

3 yields will support investment activity in the St. Louis metro this year.
Single-tenant cap rates in the low-7 percent range could draw out-of-state
2 buyers seeking to exchange into less management-intensive properties.
Multi-tenant deal flow, on the other hand, will be more sporadic and
dominated by large, cash-heavy buyers. Nevertheless, with average cap rates
1
in the mid-7 percent range, multi-tenant properties will attract buyers to the
metro. Repositioning deals in the downtown area, which could produce
0
04 05 06 07* 08** above-average revenue growth in the near term, will be popular with local
owners that are more familiar with the market. Deals involving assets that
need to be razed and redeveloped can still be found, especially in areas
Asking Rent and Vacancy Trends where previously planned condo construction has been abandoned due to
Asking Rent Vacancy
the housing slowdown.
$16 11%
2008 Market Outlook

$15 10%
Vacancy Rate
◆ 2008 NRI Rank: 36, New to Ranking. Slowing employment growth and
$14 9% a vacancy uptick placed St. Louis in the lower quarter of the index.
◆ Employment Forecast: After adding 18,000 positions in 2007, local
$13 8% employers are expected to expand payrolls 0.7 percent this year with the
creation of 9,500 jobs.
$12 7%
04 05 06 07* 08** ◆ Construction Forecast: Retail completions will ease to 1.9 million square
feet of retail space in 2008, increasing inventory by less than 2 percent.
Sales Trends Developers completed 2.6 million square feet last year.
$250 ◆ Vacancy Forecast: The metrowide vacancy rate will inch up 40 basis
points this year to 10.2 percent as new construction comes online and
$200 economic growth slows. In 2007, supply growth pushed vacancy 80

basis points higher.
$150 ◆ Rent Forecast: Asking rents will climb 2.1 percent by year-end 2008 to
$15.40 per square foot, while effective rents will advance 1.8 percent to
$100 $13.25 per square foot.
◆ Investment Forecast: Investors may want to consider properties in the
$50 downtown Clayton area, where city officials are exploring tax
03 04 05 06 07*
incremental financing and attempting to create a retail destination
* Estimate ** Forecast through improved walkways.

Down 7 Places 2008 Rank: 30 2007 Rank: 23 Tampa
Buyers’ and Sellers’ Expectations Gap

Expected to Narrow in Tampa Retail
D
espite lingering softness in the Tampa housing market, retailers Employment Growth vs. Retail Sales
continue to take on additional space, and net absorption will remain Employment Retail Sales
positive in 2008. Additionally, demand in some specific areas of the 12%
market is robust, and these submarkets are expected to post above-average
results in the near term. South of state Route 60 in Pinellas County, for 9%
example, heavy traffic volume on established corridors will sustain retailer
demand. Elsewhere, the effects of a softer housing market on retail spending 6%
and traffic will be most conspicuous in communities such as Brandon,
Riverview and Ruskin in Hillsborough County. Significant annual fluctua- 3%
tions in retail supply and demand are not uncommon in these quickly
growing communities, and the coming year will be no exception, with
0%
average vacancy projected to climb to the mid-8 percent range. 04 05 06 07* 08**
In the investment arena, tighter underwriting criteria slowed transaction

Retail Completions
velocity late in 2007, a trend that is expected to persist into the early part of
4
this year. As buyers and sellers grasp the changed attitudes of lenders, deals

will be executed, providing a clearer indication of pricing, thereby resetting
expectations and restoring deal flow. Transactions involving single-tenant 3
net-leased assets especially are due to rebound, but lenders will closely
scrutinize the quality of the brand and the credit worthiness of the 2
franchisee. In other property types, shopping centers and strips in high-
visibility locations along major thoroughfares, such as U.S. Route 19 in 1
Pinellas and Pasco counties, will command buyers’ interest, although
aggressive underwriting assumptions may not be factored into bid prices. 0
04 05 06 07* 08**
2008 Market Outlook
◆ 2008 NRI Rank: 30, Down 7 Places. An increase in new supply and Asking Rent Vacancy
slower retailer demand pushed Tampa down seven places in the index. $17 10%
◆ Employment Forecast: Employers are expected to expand payrolls 1.1

percent in 2008 with the addition of 15,300 positions. Last year, 13,400 $16 9%
Vacancy Rate
jobs were created in the Tampa metro.
$15 8%
◆ Construction Forecast: Completions will total 3.3 million square feet of
retail stock this year, up slightly from 3 million square feet added in $14 7%
2007. Approximately 1.9 million square feet is slated for completion in
Pasco County in 2008, primarily in the New Tampa area.
$13 6%
04 05 06 07* 08**
◆ Vacancy Forecast: A decline in housing-related spending will reduce
retailer demand, leading to a 70 basis point increase in the vacancy rate
to 7.8 percent this year. In 2007, vacancy rose 50 basis points as retail Sales Trends
spending began to cool. $300
◆ Rent Forecast: In 2008, asking rents are projected to gain 3 percent to

$16.15 per square foot, and effective rents will increase 2.7 percent to $225
$14.58 per square foot. Last year, asking and effective rents gained 3.6
percent and 3.5 percent, respectively. $150
◆ Investment Forecast: Newer shopping centers in areas such as North

$75
Pinellas County, Mid Pasco County and New Tampa offer great
visibility along roadways where traffic flows are growing and will
generate interest in the years ahead. Developers, meanwhile, will focus $0
03 04 05 06 07*
on sites along the Interstate 4 corridor in East Tampa and in southern
portions of Hillsborough County. * Estimate ** Forecast
Market Forecast Employment: 1.1% ▲ Construction: 10% ▲ Vacancy: 70 bps ▲ Asking Rents: 3% ▲

Tucson No Change 2008 Rank: 21 2007 Rank: 21
Tucson’s Robust Population Growth

Attracting National Retailers
W
Employment Growth vs. Retail Sales ith a positive economic outlook and steady population gains, Tucson
Employment Retail Sales is poised to draw additional national retailers to the region. This year,
12% household incomes will be bolstered by significant job growth in the
typically higher-paying professional and business services sector. As a result,
9% retail sales are expected to climb 4.2 percent, which will sustain a strong level
of tenant demand. Additionally, the metro’s above-average population
6% growth, which is projected to add 18,000 residents annually over the next five
years, will continue to reinforce the region’s vigorous retail trade industry
3%
going forward. Tucson’s population is set to breech the 1 million mark within
the next two years, making the area increasingly attractive to national retailers.
In response, developers are expected to expand metrowide inventory signifi-
0%
04 05 06 07* 08** cantly with the delivery of approximately 2 million square feet of retail space.
Most of this year’s new supply will come online in the rapidly developing
suburban areas north of the city center. Despite the influx of new construction,
Retail Completions
the rise in vacancy is expected to be short-lived, as the metro has been largely
4
underserved by retailers.
3 Investors will continue to target local retail properties in 2008, drawn by

attractive yields and prospects for consistent growth. This year, out-of-state
2 investors are expected to maintain their market presence, lured by cap rates
that hover above those in major coastal markets. Cap rates for single-tenant
1 properties, which generally trade in the low-7 percent range, may trend
slightly higher. Additionally, initial yields for multi-tenant properties will
0
likely increase from the high-6 percent range as buyers and sellers adjust
04 05 06 07* 08** price expectations in light of stringent lending practices. As such, tighter
lending requirements may dampen competition for top-tier infill assets,
Asking Rent and Vacancy Trends enabling buyers to reposition properties in favorable locations near
Asking Rent Vacancy downtown and the University of Arizona campus. Assets located downtown
$19 12% could offer owners upside potential, as area vacancy is expected to decline.

Vacancy Rate
$17 10% ◆ 2008 NRI Rank: 21, No Change. Strong retail sales growth was offset by
an increase in new construction, and Tucson held its position in the NRI.
$16 9% ◆ Employment Forecast: Tucson employers are forecast to post job
growth of 1.7 percent this year with the creation of 6,600 positions,
$15 8% compared with a 1.9 percent gain in 2007.
04 05 06 07* 08**
◆ Construction Forecast: Builders are expected to add approximately 2
Sales Trends million square feet by year end, with the Oro Valley and North/Upper
Single-Tenant Multi-Tenant West submarkets accounting for 60 percent of all deliveries.
$250
Vacancy Forecast: Vacancy is forecast to increase 50 basis points in 2008
$200 to 10.4 percent. The Central submarket is expected to outperform, as

property owners near downtown are benefiting from the ongoing Rio
Nuevo revitalization efforts.
$150
◆ Rent Forecast: Asking rents are projected to climb 3 percent to $17.80
$100 per square foot this year, while effective rents advance 2.8 percent to
$50
◆ Investment Forecast: Buyers with a long-term focus who are willing to
03 04 05 06 07*
pay a premium for newer assets in the path of population growth
* Estimate ** Forecast should look to Marana and the North/Upper West submarket.

Down 3 Places 2008 Rank: 12 2007 Rank: 9 Washington, D.C.
More Subdued Pace of Growth

Expected in Washington, D.C.
I
n the Washington, D.C., metro area, retail property vacancy is expected to Employment Growth vs. Retail Sales
rise in response to a more subdued pace of demand growth, and rents will Employment Retail Sales
climb modestly this year. In suburban Maryland and Virginia, an ongoing 8%
slowdown in housing-related spending will increase vacancy to 4.2 percent
and 3.3 percent, respectively. While demand recedes in the months ahead, 6%
much is happening in the way of supply. In Virginia, developers are
becoming active in outlying areas, such as Spotsylvania and Stafford 4%
counties. Closer in, Fairfax County officials are looking to develop a 1
million-square foot mixed-use project at a new Metro stop in Reston. In 2%
Maryland, local authorities are also searching for ways to make better use of
the land surrounding Metro stops. As for investment in the suburbs,
0%
properties in established trade areas inside the Beltway will continue to 04 05 06 07* 08**
attract interest, while buyers looking for new single-tenant product should
search in outlying areas such as Frederick and Prince William counties.
Retail Completions
Vacancy is expected to linger in the low-5 percent range in the District 8

this year, slightly higher than the rate in 2007. A sluggish pace of sales of new
residential units has not generated the traffic that many retailers anticipated. 6
Accordingly, both space demand and rents are forecast to grow slowly in the
near term until conditions in the residential market improve. In the 4
investment arena, local buyers will attempt to add to their area portfolios,
but some of the caution these investors exhibited in latter half of 2007 will
2
carry over into 2008. Properties that were trading at cap rates from 5.8
percent to 6.3 percent will likely price at 7 percent or more in the months
ahead due to potential difficulties retaining tenants. In order to restore 0
04 05 06 07* 08**
momentum in the market, sellers may have to adjust price expectations.
2008 Market Outlook
Asking Rent Vacancy
◆ 2008 NRI Rank: 12, Down 3 Places. Slowing employment growth and a $30 7%
vacancy uptick pushed Washington, D.C., down three places in the NRI.
$28 6%
Vacancy Rate
◆ Employment Forecast: Employers added 41,000 jobs last year, but the
pace of hiring will taper to 25,000 new positions in 2008, a 0.8 percent gain.
$26 5%
◆ Construction Forecast: This year, builders will complete 4 million
square feet of retail space, compared with 3 million square feet in 2007. $24 4%
Approximately 1.3 million square feet is slated for delivery in
Spotsylvania and Stafford counties in Virginia, where 3,600 new $22 3%
households are projected annually. 04 05 06 07* 08**
◆ Vacancy Forecast: A 40 basis point rise in marketwide vacancy to 4.8

percent is projected this year. Vacancy is expected to hover in the mid-4 Sales Trends
percent range in suburban Virginia counties and in the low-5 percent $400
range in Maryland and the District.
$300
◆ Rent Forecast: Marketwide asking rents are forecast to increase 3
percent in 2008 to $28.18 per square foot, approximately the same rate as
last year. Effective rents will advance 2.8 percent to $25.76 per square $200
foot, compared with a 3 percent rise in 2007.
$100
◆ Investment Forecast: Restaurants and storefronts in Alexandria could
warrant greater consideration, as a trolley service will begin to run in
Old Town in April. The trolley is expected to receive heavy use from $0
03 04 05 06 07*
hotel guests staying at the huge National Harbor property across the
river in Prince George’s County. * Estimate ** Forecast

West Palm Beach Down 7 Places 2008 Rank: 18 2007 Rank: 11
Minimal New Construction a Safety Net

Against Slowing Economy
Employment Growth vs. Retail Sales
A
promising long-term outlook for Palm Beach County remains intact,
Employment Retail Sales due to the projected addition of more than 10,000 households annually
12% over the next five years and the resulting increase in traffic volume. The
ongoing realignment of the local housing market, however, will have a mildly
9% adverse effect on retail properties in Palm Beach County in the near term. In
the months ahead, vacancy is expected to rise to approximately 7 percent as
6% residential-related spending slows and retailers react by trimming space
requirements. Rents will continue to grow, especially in high-demand areas
3% like Boca Raton and West Palm Beach, but some owners may elect to hold the
line on rents to retain tenants. Retail property stock, meanwhile, is expected to
expand by only 1.2 percent this year after several periods of annual growth in
0%
04 05 06 07* 08** excess of 2 percent. Supply additions may slow significantly in 2008, as there
is little new space in the planning pipeline. The large Callery-Judge tract in the
Retail Completions western portion of the county, for example, may contain up to 3,000 homes,
but only 220,000 square feet of retail is presently proposed.
4
In the investment market, property owners will continue to gradually

3
adjust expectations in the months ahead. Owners of single-tenant net-leased
assets, for example, who have seen the median price jump 57 percent since
2 2004, may conclude that the strong gains in value have been locked in, and
that for some now may be the time to sell. Multi-tenant property owners
1 who have witnessed velocity and price appreciation slow significantly could
begin to realize that investors are not willing to stretch for assets as they did
0 several quarters ago. Overall, cap rates for all properties vary from the mid-
04 05 06 07* 08** 6 percent to mid-7 percent range.

Asking Rent Vacancy
$26 9% ◆ 2008 NRI Rank: 18, Down 7 Places. West Palm Beach fell seven places
in the index due to ongoing housing concerns and slowing job growth.
$24 8%
Vacancy Rate
◆ Employment Forecast: Employers are forecast to add 8,000 jobs in 2008,

$22
a 1.3 percent increase but down from 8,500 positions created last year.
7%
◆ Construction Forecast: Approximately 750,000 square feet will be

$20 6%
delivered this year, down from 1 million square feet in 2007. The
400,000-square foot Boynton Town Center accounts for most of the
$18 5% square footage slated for completion.
04 05 06 07* 08**
◆ Vacancy Forecast: The vacancy rate is expected to rise 30 basis points in

Sales Trends 2008 to 6.9 percent. A slumping housing market will curtail space
Single-Tenant Multi-Tenant demand for the next few quarters.
$400
◆ Rent Forecast: Average asking and effective rents are projected to rise 3
$300
percent to $23.56 per square foot and $21.32 per square foot, respective-
ly, by year end. Rents at new space, such as the Wellington Green
$200
Commons, can average more than $30 per square foot, however.
$100 ◆ Investment Forecast: In aggregate, strip center and shopping center

rents have increased 20 percent since 2004. Under-managed properties,
$0 where owners have failed to regularly adjust rents to market levels
03 04 05 06 07* should present solid upside opportunities for buyers. Expect activity to
* Estimate ** Forecast focus on established trade areas east of Interstate 95.

National Retail Group Managing Directors

Bernard J. Haddigan, Senior Vice President, Harvey E. Green, President, Chief Executive Officer
Managing Director Tel: (818) 907-0600 / hgreen@marcusmillichap.com
Linwood C. Thompson, Senior Vice President, Managing Director

National Research Team National Multi Housing Group
John Chang, National Research Manager Tel: (678) 808-2700 / lthompson@marcusmillichap.com
Bryan O’Keefe, National Client Services Manager
Peter O’Neil, National Publications Manager Gary R. Lucas, Senior Vice President, Managing Director
Thomas Hershey, Senior Analyst Tel: (415) 963-3000 / glucas@marcusmillichap.com
Erica Linn, Senior Analyst Bernard J. Haddigan, Senior Vice President, Managing Director
Sarah Brewer, Research Administrator National Retail Group
Michael Brown, Research Associate Tel: (678) 808-2700 / bhaddigan@marcusmillichap.com
Amber Bryan, Assistant Editor
Justin Buckley, Research Analyst John J. Kerin, Senior Vice President, Managing Director
Greg Clemmer, Market Analyst Tel: (818) 907-0600 / jkerin@marcusmillichap.com
Justin Davenport, Research Analyst
Jonni deGraaf, Research Analyst David A. Wetta, Senior Vice President, Managing Director
David Delich, Research Analyst Tel: (602) 952-9669 / dwetta@marcusmillichap.com
David DeMarti, Research Associate Mitchell R. LaBar, Senior Vice President, Managing Director
Neil Evans, Research Associate Tel: (818) 907-0600 / mlabar@marcusmillichap.com
Art Gering, Senior Market Analyst
Josh Gisselquist, Research Associate Donald A. Lorenz, Senior Vice President, Managing Director
Steve Hovland, Market Analyst Tel: (650) 494-1400 / dlorenz@marcusmillichap.com
Kevin Major, Research Analyst
Jon McNulty, Research Associate Hessam Nadji, Senior Vice President, Managing Director
Nancy Olmsted, Research Associate Research Services
Paul Salinas, Research Associate Tel: (925) 953-1700 / hnadji@marcusmillichap.com
David Sours, Research Associate Stuart E. Kaiser, Chief Financial Officer, Managing Director
Jarrod Thuener, Research Associate Tel: (818) 907-0600 / skaiser@marcusmillichap.com
Patricia Trinidad, Research Associate
Christopher Wright, Research Associate Kevin A. Assef, Senior Vice President, Managing Director
Tel: (909) 456-3400 / kassef@marcusmillichap.com
Communications/Graphic Design Greg A. Moyer, Senior Vice President, Managing Director

Michelle Cocagne, First Vice President, Tel: (773) 867-1500 / gmoyer@marcusmillichap.com
Corporate Communications
Paul S. Mudrich, General Counsel, Managing Director
John Sterns, Marketing Manager
Tel: (650) 396-1900 / pmudrich@marcusmillichap.com
Stacey Corso, Public Relations Manager
Gene A. Berman, Senior Vice President, Managing Director
Tel: (954) 245-3400 / gberman@marcusmillichap.com
Contact:
John Chang Alan L. Pontius, Senior Vice President, Managing Director
National Research Manager National Office and Industrial Properties Group
2398 E. Camelback Road, Suite 550 Tel: (415) 963-3000 / apontius@marcusmillichap.com
Phoenix, Arizona 85016
Tel: (602) 952-9669 William E. Hughes, Senior Vice President, Managing Director
Fax: (602) 952-9825 Marcus & Millichap Capital Corporation
john.chang@marcusmillichap.com Tel: (949) 851-3030 / whughes@marcusmillichap.com
Statistical Summary Note: Where available, coverage has been expanded to include a broader range of retail properties. In these instances, historical retail market
data has been recalculated due to the basis change. Annual vacancy and rents are fourth quarter figures. Annual asking rents exclude concessions. Median prices
and cap rates are a function of the age, class and geographic area of the properties trading and therefore may not be representative of the market as a whole.
Reported employment growth is calculated on a year-over-year basis using a fourth quarter average. All year-end 2007 figures are estimates and therefore subject
to revision when final annual data is available.
Note: Averages are based on all property classes where available, but may be limited by class or sector in markets. Geographic market boundaries, survey samples
and methodologies may change. The information contained in this report is deemed to be reliable. If you have any questions regarding a historical series or method-
ology, please contact John Chang at john.chang@marcusmillichap.com. Every effort was made to obtain accurate and complete information; however, no represen-
tation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein.
Sources: Marcus & Millichap Research Services, American Council of Life Insurers, Bureau of Economic Analysis, Bureau of Labor Statistics, Chain Store Age, Commercial
Mortgage Alert, Commercial Mortgage Securities Association, CoStar Group, Inc., cvs.com, Dow Jones News, economy.com, homedepot.com, International Council of Shopping
Centers, Korpacz Real Estate Investor Survey, kohls.com, lowes.com, Mortgage Bankers Association, NAREIT, NCREIF, Philadelphia Convention & Visitors Bureau,
PricewaterhouseCoopers, Property & Portfolio Research, Real Capital Analytics, Real Estate Center at Texas A&M University, Reis, Standard & Poor’s, target.com, The
Conference Board, The Federal Reserve Board, TWR/Dodge Pipeline, U.S. Census Bureau, U.S. Securities and Exchange Commission, ULI, walgreens.com, walmart.com.
© Marcus & Millichap 2008

Single-Tenant Outlook
Investors Targeting Core Assets as Housing

Uncertainty Weighs on Economy
I
nvestors will likely see some continued cooling in sales velocity in 2008
as cap rates rise due to a slowing economy and more conservative
Single-Tenant Retail Transactions 2007 lending practices. Economic expansion is expected to moderate this
year as the housing market remains a drag, especially in those markets
Fast Food, 25% where the residential boom was most pronounced. Loan-to-values have
fallen from approximately 80 percent to 60 percent over the last year, and
interest-only financing is essentially nonexistent. Certain core assets,
Supermarket, 5% such as drugstores and desirable fast-food properties with market-
leading tenants, will remain buyer favorites, while investors will likely be
cautious of deep discounters and convenience stores due to concerns that
Drugstore, 18% the nation’s slowing economy and rising fuel prices could affect tenant
Restaurant, 47%
profitability. As the year progresses, cash-heavy buyers may find
Convenience Store, 5%
attractive opportunities from the greater number of distressed properties
entering the market.
Drugstores to Grow Profits Through Front-End Clinics

The market outlook for drugstores remains strong, supported by
positive long-term demographics and a healthy outlook for pharmaceutical
sales. Walgreens, the nation’s largest drugstore, recently recorded a decline
in profits due to a lack of significant growth in generic drug sales. Looking
Drugstore Property Sales Trends forward, the generic drug pipeline will remain sluggish until 2009, likely
Median Price per Square Foot keeping the sales outlook modest. Meanwhile, CVS successfully completed
$400 Average Cap Rate 10%
the acquisition of Caremark Rx, becoming the CVS Caremark Corporation.
The company is moving ahead with the addition of its MinuteClinics, which
$350 9%
Average Cap Rate
should increase both front-end and pharmacy sales. Rite Aid’s purchase of
Eckerd has added nearly 1,900 stores to its portfolio in the United States and
$300 8%
is expected to generate cost savings for the company through further
operating synergies.
$250 7%
Investors continue to actively pursue drugstore assets, with buying
$200 6% activity remaining at peak levels. Average cap rates have compressed slightly
02 03 04 05 06 07*
over the past year and are currently hovering in the mid-6 percent range. A
robust outlook for generic drug sales within the next five years supports
forecasts for a strengthening industry, underpinning sustained investor
interest for drugstores.
Fuel Costs Weigh on Profits for Convenience Stores/Gas Stations

Escalating fuel prices and higher credit card fees continue to squeeze
Convenience & Gas Store Sales Trends profit margins for operators of convenience stores and gas stations.
Median Price per Square Foot Although sales are growing, the increased cost of fuel is reducing many
$550 Average Cap Rate 10%
operators’ bottom lines. In order to combat the loss in revenue, convenience
and gas store operators are looking to other product offerings. For example,
$500 9%
Average Cap Rate
many companies, such as Exxon Mobil, are expanding their offerings to

include more breakfast and lunch items.
$450 8%
British Petroleum has decided to sell its inventory of 700 U.S.
$400 7% convenience stores over the next two years in an effort to focus on the
company’s core business and improve operational performance.
$350 6% Subsequently, transaction velocity will likely pick up in the near term,
02 03 04 05 06 07*
though the accelerated pace will eventually return to more normalized
levels. Over the past few years, average cap rates have stayed within a tight
band of the current high-6 percent to low-7 percent range. Investor concerns
over rising fuel costs could provide subtle upward pressure on cap rates
* Estimate through 2008.

Single-Tenant Outlook
Fast-Food Chains Expanding Offerings, Generating Strong Sales

Fast-food market leaders continue to generate increased sales by Fast-Food Property Sales Trends
offering diversified menus and extended hours. For example, McDonald’s Median Price per Square Foot
new high-profit margin line of premium specialty coffee products is rivaling $600 Average Cap Rate 10%

Starbucks for price and recently won a Consumer Reports taste test. In
$500 9%
Average Cap Rate

addition, the introduction of new salads, snack wraps and breakfast items is
expected to position McDonald’s for continued growth through 2008. In late
2007, Burger King posted the strongest quarter of same-store sales in nearly $400 8%
two years, citing solid global gains. Taco Bell continues to suffer from
slumping sales, though the chain is seeking to reverse this downward trend $300 7%
by expanding its breakfast menu and adding a line of frozen beverages.

$200 6%
02 03 04 05 06 07*
Investor interest in fast-food restaurants has remained strong, and cap
rates have increased only modestly over the past year to the high-6 percent
range. Despite some slowing in sales for certain tenants, the outlook is bright,
as higher fuel prices and rising food costs are driving more consumers to
affordable food options.
British Grocer Challenges Market with its New Concept

The supermarket marketplace is becoming increasingly competitive, Grocery Store Sales Trends
receiving additional pressure discount retailers and organic grocers. Wal- Median Price per Square Foot
Mart is moving forward with plans to redesign and expand its smaller stores, Median Price per Square Foot $140 Average Cap Rate 10%
adding more freezer and bakery space. These efforts, combined with the
$120 9%
Average Cap Rate

company’s ultra-competitive price structure, will weigh heavily on
traditional grocers. On the other end of the spectrum, organic grocer Whole
Foods has been cleared to complete its acquisition of Wild Oats. The merger $100 8%
could allow for more competitive prices for organic foods, increasing the
threat to traditional supermarkets. Additionally, British grocery giant Tesco $80 7%
has begun to open its Fresh & Easy Neighborhood Market stores in
California, Nevada and Arizona. The markets, which average 10,000 square $60 6%
02 03 04 05 06 07*
feet, focus on pre-made dinners and healthy, organic offerings.
Given the increasingly competitive nature of the grocery business,

transaction velocity within the market is off its peak recorded a year ago.
Average cap rates are currently in the low-7 percent range, up from the low-
6 percent range one year earlier.
Mergers Dominating Restaurant News

Concerns over discretionary consumer spending have some restaura- Restaurant Sales Trends
teurs looking to mergers to weather the storm. Darden Restaurants recently $350 Average Cap Rate 10%
announced the acquisition of RARE Hospitality, owner of The Capital Grille

and LongHorn Steakhouse, adding 317 stores nationwide to its portfolio. $300 9%
Average Cap Rate
Additionally, Darden’s Red Lobster is currently in the process of updating its

existing locations with a new prototype, and plans to gear advertising $250 8%
toward consumers that are less likely to be affected by rising prices.
America’s largest casual dining restaurant, Applebee’s, has been acquired by $200 7%
IHOP in a $2.1 billion transaction, which could generate the sale of hundreds
of company-owned locations. $150 6%
02 03 04 05 06 07*
Buyers will pursue restaurant properties, with velocity expected to
maintain the pace established in 2007. Cap rates average in the low-7 percent
range, up slightly over the past year; however, a cooling economy could
cause some slowing in casual dining, putting upward pressure on cap rates.
* Estimate

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National Retail Group
M
arcus & Millichap’s National Retail Group (NRG) is comprised of more than 340 retail investment
specialists located within the firm’s offices nationwide. The group specializes in providing investment
advisory and transaction services for all types of retail real estate, including single-tenant properties,
ground-leased properties, strip centers and neighborhood, community, specialty and entertainment
properties. Key experts within the NRG specialize in power centers and regional malls.
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resentation” by our sales force and clients, this service approach is the cornerstone of our business.
Our extensive local market knowledge and retail property expertise enable us to advise owners on
precision market pricing, property positioning and creating long-term investment strategies that
support wealth generation and preservation.
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options supported by a high standard of pricing and underwriting. Investors also benefit from our
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fessional marketing services.
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■ Our NRG management and retail professionals are in constant communication with institutional
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maintaining personal relationships with a diverse base of investors creates the most effective exposure
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Supply and Demand Analysis

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sources in the industry. On the demand side, expansion and closure announcements by
tenants are tracked regularly as well as vital local and national economic and demographic
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integrate all variables that impact retail property values for the benefit of our clients.
Expert Financial Analysis

■ Our financial analysts work closely with our retail investment experts to establish the current
and future value of retail assets using custom models. Peer properties are analyzed in detail
to establish rent, vacancy and other competing factors relating to valuation. In addition,
retail projects under construction, recent retail property sales as well as comparable
properties on the market are reviewed.
Tenant, Credit Analysis

■ Our national database of businesses allows our NRG professionals to analyze employment
density, major employers at the local level as well as employment by industry and/or
business category to further determine the economic strength of specific trade areas. Access
to various credit rating databases allows owners and investors to evaluate the strength of key
tenants and establish various re-tenanting options and property positioning strategies within
local markets.

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Real Estate Investment Research

2008 National Retail Report

To our valued clients:

Harvey E. Green Hessam Nadji

Retail Market Overview

2008 Annual Report page 3

Millions of Square Feet

as the second-ranked market, nor is it 10 times better than the 10th-

Slowing Economy a Headwind for Retailers

Cooling economic growth and the housing downturn are weighing

of construction remain obstacles. On the other hand, supply-constrained

Southern California are expected to maintain solid fundamentals. Many

some of the tightest markets in the country.

page 4 2008 Annual Report

MSA 2008 2007 Change

High-Tech and Land-Constrained Markets Dominate Top 10 Fort Lauderdale 11 2 ▼ 9

2008 Annual Report page 5

Indicators Suggest Slower Growth, Not

balance sheets. Current employment indicators are generally positive, but

6% Change in Nonfarm Employment 6

housing market will remain a drag, shaving up to 0.75 percentage points

off of overall GDP growth.

◆ Trade Deficit Narrowing. The U.S. dollar has weakened dramatically

◆ Wage Pressures to Ease. The unemployment rate is expected to rise to

page 6 2008 Annual Report

Slower Consumer Spending Limiting Retailer

Square Feet Completed (millions)

focusing first on Southern California, Arizona and Nevada. The retailer’s

grocery stores and has proven highly successful abroad. Nationwide,

Retail Sales, Less Auto

Retail Sales, Less Auto (Y-O-Y)

◆ Development of Large Centers Up. Several large regional malls/lifestyle

◆ Shopping Center Vacancy Below Average. Neighborhood and

2008 Annual Report page 7

Financing Sources Shifting, Tighter

2008 Capital Markets Outlook

◆ Global Efforts to Restore Liquidity. Following the December 2007 rate

$0 ◆ Lender Spreads Expected to Remain Volatile. Conduit spreads for

page 8 2008 Annual Report

Back to Value Creation: Tenant Credit,

Median Price per Square Foot

Average Cap Rate

◆ Foreign Investors Go Shopping. A more than 20 percent decline in the 150%

◆ Shopping Centers Going Green. The incremental cost of building “green”

2008 Annual Report page 9

Higher-than-Average Growth Keeps

9% diversified mix of businesses as reasons for their relocation. For example,

low effective rent growth.

◆ Construction Forecast: Retail builders are active, although deliveries are

8 percent range since 2004.

◆ Rent Forecast: New inventory, combined with improvements to

◆ Investment Forecast: Investors may want to consider retail properties

page 10 2008 Annual Report

Retailers, Out-of-State Investors

Square Feet (millions)

2008 Market Outlook

percent in 2008. Last year, record construction activity caused

◆ Investment Forecast: Employment and population growth in the Round $100

2008 Annual Report page 11

Institutions Actively Seek Access into

Boston’s retail investment market remains strong, and competition

2008 Market Outlook

◆ 2008 NRI Rank: 17, Up 1 Place. Above-average effective rent growth